The information contained in this article was correct at the time of writing
January 16, 2024
Portfolio Landlord Mortgages in Today’s UK Market
The UK buy-to-let mortgage market has gone through significant changes in recent years, presenting both opportunities and challenges for portfolio landlords looking to finance multiple investment properties. With greater regulation and stricter affordability criteria, securing finance as a portfolio landlord is not as straightforward as it once was. However, for seasoned investors with a good credit history and proven experience managing rental properties, there are still plenty of options to fund new acquisitions or remortgage existing portfolios.
The Buy-to-Let Mortgage Market in Numbers
According to UK Finance, in Q3 2022 there were 2.1 million outstanding buy-to-let mortgages in the UK, with a total value of £298 billion. This represents a year-on-year increase in buy-to-let lending of 1.3% by value and 0.9% by volume compared to Q3 2021. However, over the past five years, stricter regulation of buy-to-let lending has seen a gradual decline in lending volumes and portfolio landlord products.
For example, the introduction of higher stamp duty rates for buy-to-let investors in 2016 and changes to mortgage interest tax relief from 2017 have increased costs and reduced profitability for landlords. Tougher affordability testing under the Prudential Regulation Authority’s underwriting standards introduced in 2017 have also made it harder for portfolio landlords to borrow at higher loan-to-values. As a result, average loan-to-values for buy-to-let lending have fallen from 76% in Q1 2015 to 64% in Q3 2022.
Opportunities for Portfolio Landlords
Despite the added regulation and rising costs, buy-to-let remains attractive for certain types of property investors able to leverage scale and portfolio diversity. According to research by DJ Alexander, around 6% of private residential landlords own five or more properties. These players often have greater experience managing property as a business, and better credit histories to qualify for more competitive buy-to-let mortgages.
For landlords with an existing portfolio looking to refinance or release equity, now could be an opportune time with house prices and portfolio values higher. According to Nationwide’s House Price Index, UK house prices were 9.8% higher in November 2022 than 12 months previously. Remortgaging could allow you to access equity at lower interest rates to finance renovations or new acquisitions.
Those new to portfolio landlord borrowing may find lower loan-to-value products more accessible. While 95% LTV buy-to-let mortgage deals are very limited nowadays, there are still options available at 60-75% LTV with reasonable rates. Building a relationship with a buy-to-let lender over time can provide the flexibility to borrow further as your portfolio grows.
Mortgage Affordability Criteria for Portfolio Landlords
When assessing affordability for portfolio landlord mortgages, lenders must now apply stricter criteria evaluating overall business viability, including:
- The number of properties owned and total portfolio value
- Rental income from existing properties, minus associated costs
- Current and projected loan-to-value ratios across the portfolio
- Other earned income sources and existing financial commitments
Typically, lenders will expect rental income to cover around 125% to 165% of the mortgage payments on a buy-to-let property. For landlords with four or more mortgaged buy-to-let properties, stricter top-slicing policies may apply, assessing affordability on a portion of total portfolio rental income.
Lenders will delve deeper into your buy-to-let business plan, assessing factors like:
- Experience managing rental properties
- Contingency fund availability
- Risk profile of target tenant market
- Future portfolio growth ambitions
Therefore, preparing the right documentation and business case is essential when applying for portfolio landlord mortgages in today’s market.
Working With Buy-to-Let Mortgage Brokers
Navigating lender criteria and finding the most appropriate buy-to-let mortgage products can be challenging for portfolio landlords. Working with a specialist buy-to-let or commercial mortgage broker is extremely valuable.
The right broker will understand the needs of professional landlords and have access to niche lenders and portfolio products not available on the high street. They can source you the most competitive interest rates and arrangement fees based on your individual financials and business plan.
They will also advise whether applying jointly with a spouse or business partner could increase your borrowing capacity. And assist you in modelling cash flow and structuring the financing of larger portfolios in the most efficient way possible.
Ultimately, a good broker serves as an intermediary representing your business interests to lenders. Helping you put forward the strongest case when applying for portfolio landlord mortgages requiring more extensive underwriting. Saving investors significant time getting the right finance in place promptly to seize emerging opportunities.
Buy-to-Let Remortgaging Tips
If looking to remortgage rental properties within an existing portfolio, follow these tips for success:
Research timing – Be aware of early repayment charges tied to your current mortgages that could make immediate remortgaging suboptimal. Plot the timeline for when you can remortgage each property without penalty. Monitor rate movements to remortgage when new products offer sufficient incentive.
Shop around – With the portfolio lending market still recovering from COVID-19, there are fewer products and lenders than previously. Cast your net wide by consulting experienced brokers with access to the specialist lending market.
Maximise rental coverage – Can you increase rental income sustainably through renovations or improved property management? Improving the rent to mortgage payment ratio across your portfolio could unlock better interest rates.
Stress test for rate rises – Apply buffer rates at least 2% higher than current deals when assessing affordability. This insulates your ability to carry costs should interest rates spike suddenly over the next mortgage cycle.
If executed methodically with the right advice, remortgaging remains an accessible avenue for portfolio landlords to tap equity or reinvest at lower prevailing rates.
Explore Alternative Financing Options
Beyond traditional buy-to-let mortgages with high street banks and building societies, portfolio landlords may wish to explore alternative property finance options to fund acquisitions. These include:
Bridging Loans – Ideal for purchasing property at short notice then refinancing to longer-term mortgages. May incur higher rates but enable you to move swiftly to secure deals.
Commercial Mortgages – An option for larger or HMO rental portfolios not suited to pure buy-to-let lending criteria. Potentially higher LTVs and interest coverage ratios.
Asset-Backed Lending – Unlocks equity from existing unmortgaged properties within a portfolio, using other owned assets as security for loans to finance new purchases.
Joint Ventures – Join forces with equity partners on specific investments, tapping their capital to scale while sharing risks and rewards.
Alternative financing broadens the toolbox for portfolio landlord investing. The right broker can match you with appropriate funding channels beyond traditional buy-to-let mortgages.
Purchase Criteria When Expanding Portfolios
When deploying debt to acquire additional rental properties, applying prudent selection criteria protects asset quality and income sustainability:
Realistic yields – After all costs, does the property offer healthy projected rental yields of at least 5%? Riskier properties like HMOs may justify lower yields.
Low volatility – Seek out traditionally defensive asset classes in areas with diverse local economies and ongoing housing demand from tenants.
Manageable leverage – Don’t overstretch yourself. Stick to sensible loan-to-value ratios leaving sufficient equity buffers.
Future-proofed – Does the area offer good prospects for long term capital growth and rental increases beating inflation?
Diversification – Adding property types or locations uncorrelated to your existing assets spreads risk.
Run the numbers taking a conservative approach. Build padding into your assumptions on voids, maintenance and rate rises. Avoid overpaying simply to expand your portfolio. Patience coupled with rigorous due diligence allows you to execute prudent deals as opportunities emerge.
Are You Ready to Discuss Financing Your Portfolio Plans?
Expanding or consolidating rental property portfolios requires strategic financing in today’s mortgage landscape. As experienced portfolio landlords ourselves, we understand the needs of serious buy-to-let investors with larger plans.
Whether you are new to portfolio landlord borrowing or a seasoned investor seeking to refinance, why not book a consultation? We can assess your existing assets and future ambitions, providing tailored advice on structuring finance. With access to exclusive portfolio products across specialist lenders, we find solutions when high street banks cannot assist.
To book your appointment or receive customised product recommendations, feel free to call or email our office today. Our dedicated team looks forward to helping implement your portfolio vision.
