The savvy buy to let landlord is always looking to strengthen and streamline their property investment finances. Often overlooked, portfolio mortgages could save portfolio landlords valuable time and money. Business Development Director, Jeni Browne, explains why.
With the financial impact of COVID lingering for many and the general increases to day-to-day life, many landlords are looking for ways to strengthen their property investments and save costs where possible; different forms of property finance are often an efficient way to do this.
Although they are a more specialist type of mortgage, portfolio loans offer several benefits for landlords with multiple buy to let properties.
What is a Portfolio Mortgage?
A portfolio mortgage is a single loan facility under which two or more investment properties can sit. Rather than having individual mortgages for each property, you can finance a group together under one interest rate and with one monthly payment.
Benefits of a Portfolio Mortgage
Landlords who have portfolio mortgages always enjoy the reduced administration that it brings. You will have just one mortgage payment to a single lender each month, making it easier to track your cashflow.
As it is a single mortgage, you would pay reduced legal costs when setting up the mortgage. You may also be able to negotiate a reduction on the cost of your valuation fees as the surveyor may well be able to visit multiple properties at a time.
When applying for a portfolio mortgage, as it is a single mortgage application, you provide just one set of paperwork and will be asked just one set of questions. This may not sound like a huge deal, but if you were managing 10 applications at once, you really would see the benefit here!
Drawbacks of a Portfolio Mortgage
As a portfolio mortgage is quite a specialist form of property finance, the number of buy to let lenders who offer them is limited. The consequence is that the mortgage rates are not always as competitive as individual property mortgage rates, so it may work out cheaper to mortgage your properties separately.
Only a few buy to let lenders offer portfolio mortgages, but they are a common offering from commercial lenders. While this means that there are more portfolio mortgages to choose from in this market, the commercial lenders generally have a lower maximum portfolio loan to value (LTV) of 65%. The buy to let lenders will usually go up to 75%, but there are fewer to choose from. As with any mortgage, your individual circumstances and how much borrowing you have will determine what products will be available to you.
One of the main restrictions of a portfolio loan is that should you want to sell one (or more) of the properties, this could potentially upset the LTV and lender rent cover criteria, especially if it's one of your higher performing properties. In this scenario, the lender may have to reassess the whole portfolio. If you are confident that you'll be keeping all the properties for the full mortgage term, this isn't an issue, but a portfolio mortgage might not be the most suitable option for you if you're looking for a flexible financial setup.
Some portfolio landlords prefer to mortgage their properties on a variety of fixed terms and mortgage types. It's not uncommon for landlords to have some properties on variable rates and others on two, five and sometimes ten-year fixed terms. Doing this allows you to have more flexibility and to spread risk, rather than having all your property "eggs in one basket", as it were. Again, this is dependent on your personal preferences when it comes to your investment finance and future plans!
Looking for your next buy to let mortgage?
If you'd like to know more about portfolio mortgages and whether it's a suitable option for your investment needs, our team of expert brokers will be more than happy to answer questions and advise the best mortgage solution for your portfolio.
Give them a call on 0345 345 6788, or email enquiry@mfbrokers.co.uk.
