What Is A Portfolio Mortgage & How Does It Work?

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Portfolio mortgages

Portfolio mortgages can be a great way to release equity and manage multiple buy-to-let properties from one centralised mortgage lender with one monthly repayment. Instead of having numerous lenders across various properties, you can have one lender for your whole portfolio.

Buy-To-Let portfolio landlord mortgages allow you to own multiple properties and have one mortgage against all of them, which is created as an average of all the existing mortgages on your property.

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Portfolio mortgage loans allow landlords to group all of their Buy To Let (BTL) properties into one mortgage and manage it from one account with one monthly repayment. One centralised mortgage lender controls the entire portfolio, making tracking investments far easier.

Whether the portfolio mortgage is, a fixed or standard variable rate will depend on the mortgage provider.

What Types Of Properties Qualify For A Portfolio Mortgage?

There must be at least four rental properties within a portfolio mortgage, but they can differ on the type of properties; for example, there can be a mixture of Holiday Lets, Buy To Lets, Multi-Unit Freeholds and HMOs.

The mortgage lender can include no maximum amount of properties within a portfolio mortgage, but this will differ depending on the mortgage lender — some will put a maximum total mortgage value amount. The minimum number of properties will always remain at four.

How Do Portfolio Mortgages Work For Investors?

The portfolio is registered as a limited company; expenditures and finances are treated like any other limited company.

Mortgage lenders introduced property mortgages so landlords could manage their finances more efficiently.

Who Can Apply For A Portfolio Mortgage?

A landlord or property investor with four or more Buy To Let properties under a limited company is known as a portfolio landlord. This can apply to sole and joint applicants and must also meet the Buy To Let criteria.

What Is A Portfolio Landlord?

A portfolio landlord owns four or more mortgaged rental properties on a private or limited company basis. The official definition of a portfolio landlord is outlined by the Prudential Regulation Authority (PRA).

How Do Portfolio Mortgage Rates And Fees Work?

The overall fee structure of a mortgage allows for a long-term saving plan, as interest rates are usually in line with standard Buy-To-Let mortgages.

As the property portfolio is a limited company, when they buy new properties, they will be liable to higher rates when compared to purchasing a Buy To Let property by traditional methods.

Mortgage lenders tend to see limited companies as high risk because if the limited company goes bust, the lender will be unable to receive any debts.

Although, as property portfolios become more common under the current market conditions, mortgage lender fees are becoming more competitive.

How Are Property Portfolio Mortgage Rates Calculated?

Property Portfolio mortgage rates are calculated based on the current rates across your portfolio, as each property will have its mortgage rate. A portfolio mortgage will use each mortgage rate to determine a single rate, resulting in an average mortgage rate across your portfolio.

The minimum value for mortgage lenders tends to be £500,000, and the rental income generated will need to be around 120%-140% of the loan repayments.

Affordability for Buy-To-Let mortgages is typically assessed by the interest coverage ratio (ICR). This is the ratio of gross rental income to mortgage interest repayments.

Do You Need To Put Down A Deposit For A Portfolio Mortgage?

For non-cash property investments, you will require a deposit of at least 15%-25% which can be raided by remortgaging your existing property. If you remortgage to raise a deposit to expand your portfolio, you must determine how much equity is inside the property.

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What Are The Benefits Of Portfolio Mortgages?

As with any mortgage category, there are advantages and disadvantages, so it can be challenging to identify a mortgage for you. Here are some of the benefits of a portfolio mortgage:

Portfolio Tax Efficiency

Any funds withdrawn from a portfolio are taxed instead of paying tax solely on net income, making a portfolio mortgage far more tax efficient than a Buy To Let mortgage.

As a landlord, you can use funds to renovate or purchase additional properties if you retain funds in your portfolio. Landlords will pay the lower corporation tax rate as outgoings will be considered expenses.

Most portfolio mortgage lenders are small, privately owned community banks with way more flexibility than larger financial institutions, making it easier for them to change loan terms to fit your needs and financial circumstances.

Equity To Grow Portfolio

Portfolio landlords can borrow against the equity, usually on the Loan To Value (LTV) across the entire portfolio. For instance, if the portfolio was valued at £1 million and the outstanding mortgage balance was £500,000, the portfolio would have £500,000 in equity.

You may find purchasing a broader range of properties easier as mortgages created for portfolio landlords are scalable, as there is no limit on how many properties can be purchased.

Boost Borrowing Power

As you are using just one centralised mortgage lender for your entire portfolio, you can simplify your Buy To Let finances.

You may find it easier to get accepted by a property mortgage provider than a traditional lender, as they will not have to meet specific underwriting requirements.

Any underperforming properties in a portfolio can be balanced out by your well-performing properties, which can alleviate any concerns your mortgage lender may have.

Underperforming properties can be a warning light for mortgage lenders, especially when you are looking to request further finance.

Some mortgage lenders will assess expenditure and income as a whole rather than on a case-by-case basis, which means portfolio landlords can spread the payment over their entire portfolio and occasionally increase the maximum amount they can borrow.

What Are The Disadvantages Of Having A Portfolio Mortgage?

In any circumstance, using a mortgage to buy a property is risky, especially if mortgage payments can’t be met and Buy To Let Mortgages are no different.

Growing a portfolio is highly risky and only continues to grow in risk with more properties you add. Here are some disadvantages of a property mortgage:

Higher Interest Rates

You may be liable to higher interest rates when you take out a portfolio mortgage, as the lender will use these to offset some risks. As portfolio lenders do not have the opportunity to resell the debt in the secondary market, they can charge higher interest rates to cover any potential costs on their side.

Many mortgage lenders for property portfolios charge repayment fees, which can increase the overall cost of the loan unexpectedly.

General Repairs

Due to the nature of having all of your properties under one roof (pardon the pun), if anything were to go wrong in all your properties at once, like Japanese Knotweed or needing to replace the boiler, then you would have to pay all of these expenses at the same time.

If you need the right financial strategies to cater for this situation, it could increase your risk of being unable to meet your mortgage repayments.

Migration Of Properties

Moving all your properties into a limited company can be extremely expensive; you could be liable to pay stamp duty at a 3% surcharge on top of the standard rate.

What Is The Process Of Getting A Portfolio Mortgage?

Portfolio mortgages aren’t usually advertised as they are seen as a perk for portfolio landlords. These agreements help mortgage lenders get more business and act as a means for rewarding their loyal customers.

If you already have a relationship with a mortgage provider, it’s worth calling them first, as they are more likely to offer you a reasonable rate.

If you do not have a mortgage provider in mind, you can use a mortgage broker or mortgage advisor to find the best portfolio mortgage for you; they are independent financial advisors who compare different lenders.

Alternatively, a simple Google search can find property mortgage providers online. We recommend using Trustpilot or Google Reviews for the best customer experience possible.

How Do You Apply For A Portfolio Mortgage?

When you apply for a mortgage when you already own property, you will require a property schedule. A property portfolio schedule is a list of all existing properties in your portfolio along with information relevant to a mortgage application, including:

  • Property Address.
  • Purchase Date.
  • Purchase Price.
  • Property Type.
  • Current Mortgage (Amount And Payments).
  • Current Tenancies And Rent.

Why Are Some Properties Easier To Get A Portfolio Loan Mortgage Than Others?

When you put in for a mortgage application, you may find some resistance with some property types, but this is just due to the amount of risk involved.
The most accessible types of properties tend to be the easiest to attain mortgages, like traditional constructions that are either purpose-built flats or residential houses. The most difficult types of properties in achieving a portfolio mortgage are:

  • Student Flats.
  • Ex-Council Properties.
  • Non-Standard Buildings; constructed using timber frames or concrete.

Whether you want to expand your portfolio, remortgage properties, release equity or weigh up your options, Property Press Online has multiple articles on mortgages and property investment.

If you would like to comment or contact us, please feel free to contact us — we would love to hear from you!

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Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

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About Tom Condon 126 Articles
Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

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