As the UK enters the second recession in 20 years, buy to let landlords are looking for ways to strengthen and streamline their property investment finances. Business Development Director, Jeni Browne, explains how a portfolio mortgage is an option worth considering.
During these financially challenging times, 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. If you are looking to make the most of the current stamp duty holiday and “transfer” your personally owned portfolio into a limited company, it is an ideal opportunity to consider a portfolio mortgage.
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
The main advantage of a portfolio mortgage is that it simplifies your buy to let finances. With just one outgoing monthly mortgage payment to the same lender rather than multiple, it’s much easier to monitor and manage your cashflow. It also means you will develop a relationship with one lender who will know you and all (or at least a selection of) your properties. The benefit of this is that come remortgage time, it’s less time consuming, and there’s less paperwork!
As I mentioned at the start, there is a potential benefit for those looking to purchase their personally owned portfolio into a limited company. The temporary stamp duty holiday has offered a fantastic opportunity for many landlords who, after seeking professional tax advice, are looking to move to limited company investments to take advantage of the tax benefits. If you’re in the position to sell your multiple personally owned properties into your limited company at the same time, it could save you administrative costs and streamline the process by refinancing all the properties onto one limited company portfolio mortgage.
Furthermore, in the long term, having multiple properties under one buy to let mortgage can save on legal costs. If you were mortgaging multiple properties via your limited company, each mortgage would require a personal guarantee, and therefore attract solicitor fees for each arrangement. By using a portfolio mortgage, as there’s only one loan offer, there only needs to be one personal guarantee, reducing legal fees.
Similarly, if all the properties you want to mortgage together are in a similar location, the lender may send out just one surveyor. They will produce only one report for the whole portfolio, saving you money on valuations – which can really add up! If you want to keep administrative costs (and time) down, a portfolio mortgage may well be a suitable option for you.
Drawbacks of a Portfolio Mortgage
As this is quite a specialist form of property finance, the number of buy to let lenders who offer them is limited. The consequence of this 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, they 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, it depends on your individual circumstances and how much borrowing you have, as what will be available to you.
One of the main restrictions with 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 more highly performing properties. Therefore, the lender may have to reassess the whole portfolio. If you are confident that you’re going to be keeping all the properties for the full mortgage term, then this isn’t an issue. However, if you’re looking for a flexible financial setup, this might not be the most suitable option for you.
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!
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 email@example.com.