A portfolio mortgage enables landlords to place multiple properties under one mortgage and manage them as one account with a single monthly repayment. Additionally, one lender is responsible for the entire portfolio, which makes it easier for property owners to manage their investments, release equity and add to their portfolio.
The term property portfolio applies when a landlord has at least four properties, which allows them to benefit for tax purposes. In most cases, the landlord’s portfolio will be registered as a limited company, ensuring expenditures and finances will be treated like any other business model.
A portfolio mortgage enables ultra-high-net-worth individuals to place all their buy-to-let properties under one mortgage. For example, a landlord that owned ten properties worth £50 million in prime London locations like Knightsbridge or Chelsea would typically have ten monthly payments to separate lenders. A portfolio mortgage allows you to make one monthly payment to a single lender and, in most cases, makes a portfolio more straightforward to manage than multiple mortgage payments throughout a month.
With new, more stringent regulations being introduced, landlords with four or more rental properties must undergo more rigorous background checks. The principal change is an assessment of how property owners can afford loan repayments if one of their properties goes unrented for some time.
Lending against several properties simultaneously was more straightforward before the financial crisis of 2008. Lenders offered more flexibility in terms of how affordability was calculated. They would also assess the income generated by landlords’ entire portfolios, assuming rental income would be used to cover loan repayments even on empty properties. However, lenders now tend to focus on affordability, and some will advise a rent cover of 125% to 150%. This margin is designed to eliminate risk, which lessens the financial impact if one or more rental properties lie empty for some time.
Private landlords must pay stamp duty tax when they purchase a property, income gains tax when they rent the property and capital gains tax when they sell it. While landlords who manage their portfolio through a limited company must pay corporate tax.
Changes made by the UK government in September 2022 removed the need to pay stamp duty tax on the first £250,000 of a property, which increased from £125,000. On top of this, first-time buyers will only pay stamp duty tax on properties worth over £425,000, up from £300,000.
For individuals who manage their properties under a limited company, the UK Government recently confirmed that corporation tax rate will be frozen at 19%, which was planned to rise to 25% in April 2023. That figure of 19% is well below the level of any other G7 nation and the lowest of all the G20 countries.
On the back of this, Companies House data confirmed that more buy-to-let companies were founded in 2021 than in any previous year – with the 47,390 companies created nearly double the 24,190 founded in 2017. The changes in corporation tax should encourage long-term property investors to expand their current portfolio and continue to invest in their future.
There are no set rules when it comes to investing in property. Some mortgage lenders may impose their own rules and regulations on the number of homes landlords can own and finance or the total amount of capital they can borrow across their portfolio. However, this is typically determined by the individual landlord’s specific circumstances and background.
Lenders may also need significant documentation to process a portfolio mortgage, which makes it crucial to maintain updated information and ensure you have all the documents required to support your application.
The first step in securing a portfolio mortgage is finding a broker with demonstrable experience managing buy-to-let portfolio mortgages. This requires a different approach to standard buy-to-let applications, so it’s vital to speak with a broker that understands the complexities of managing multiple properties, negotiating limited company status and the various tax implications.
Furthermore, lenders are interested in your potential rental yield and experience as a landlord, while some may impost a minimum period for landlords to have owned investment properties. So you need to demonstrate a track record of managing a portfolio of properties to succeed in securing a portfolio mortgage.
You must also consider whether a buy-to-let portfolio mortgage is the best option for your financial situation. The equity in your portfolio can help boost your borrowing strength with lenders, but it could reduce your flexibility if cash flow becomes a problem. You need to be able to get your finances in order, assess the possible rates and fees across multiple lenders and ensure it’s cost-effective and appropriate for your financial situation.
Buy-to-let property investors can enjoy tax benefits by financing multiple mortgages through a limited company. A special purpose vehicle (SPV) is the most common method buy-to-let investors use to obtain a portfolio mortgage. Lenders can find it easier to approve an application from an SPV than from a regular trading company, as SPVs can access a wider variety of mortgage products, compared to other limited corporations. Due to the tax advantages associated with owning and operating a portfolio through an SPV, buy-to-let mortgage lenders for limited companies often face lower rental stress than individuals who are higher-rate taxpayers.
If you plan on creating a buy-to-let mortgage portfolio or extending an existing one, obtaining expert, up-to-date guidance is vital. Hectocorn’s expert mortgage brokers will analyse your personal finances, current investments, the present level of debt and the likely expenditure of the property you intend to purchase.
Hectocorn specialises in securing portfolio agreements for ultra-high-net-worth individuals. We will help you obtain the best rates and terms on your portfolio mortgage while keeping any associated costs to a minimum.