What is a portfolio review? And why are they an essential part of ensuring the health and profitability of your property investments?
What is a property portfolio review?
In simple terms, a portfolio review is like a car MOT for your investment property finances. It’s an opportunity to check that you have the most suitable mortgage products for each property (or group of properties), maximising your cash flow and profit.
How does a property portfolio review work?
We’ll start with a preliminary chat about what you’re looking to achieve, be it saving money, capital raising for further investment or something else. You’ll need to send us a completed portfolio spreadsheet document with information about all your mortgaged and unencumbered properties. As experienced mortgage brokers, we’ll comb through this information to find the solutions you need to achieve your investment plans. We’ll look at your current interest rates, available equity, and overall portfolio gearing to understand your investments’ health, possibilities, and limitations.
Sometimes, we won’t be able to improve what you’ve got, but we won’t waste your time (or money) if that’s the case! Nonetheless, it’s useful for you to know that your portfolio is in good shape and that you’re getting everything you can out of it in terms of profits.
However, in our experience, there’s typically at least one or two properties (or more in more extensive portfolios) where you can save money or release equity. We’ll always balance the costs of the remortgage process (application costs, fees, etc.) with the potential savings on offer over the mortgage term so you can get the whole picture.
Why reviewing your portfolio is essential
As I’ve mentioned above, saving money is a top reason landlords ask us to review their portfolios. Ultimately, these investments are there to make you money, so you want to ensure you’re getting maximum returns for the investment and time you put in to build and run it. A portfolio review ensures the finances are fine-tuned, or at the very least lets you know what you need to do in the future to ensure it keeps performing to its full potential, maximising your profits and cash flow.
For example, I recently reviewed a portfolio of 15 properties with a total value of £10+ million. While most were in fine shape, four were on old trackers of c2.54% over Base Rate (BBR). Although the properties were in a complex position above commercial units amongst other complicated criteria requirements, I still saved my client a lot of cash. By refinancing the £1 million of borrowing onto a new rate, my client saved c£35,000 over the next five years in interest payments.
Mortgage Market Changes
In the first two weeks of 2022, our mortgage technical desk team updated our software used to find your rates with 400 product updates. Multiply this up across a 52-week year, and we can expect c10,000+ product updates across the whole buy to let mortgage market. Lenders remove, tweak and add rates all the time. They do this to manage business levels and react to the wider money markets. At the time of writing, we’re expecting BBR to rise again, following an increase in December 2021. This change is a reaction to the staggering rate of inflation and the rates at which banks lend money to each other (SWAP rates) and will directly impact the interest rates lenders set for buy to let mortgages.
The continuously evolving landscape of the market means what may have been the most suitable rate for you three years ago, is now costing you more than a new one on offer (sometimes even if you have to break your Early Repayments Charges to exit). At the end of the day, what’s the harm in checking out your other options?!
The second most popular reason we get asked to review landlord portfolios is to find available equity to release for new investments. Even if you’re on an interest-only mortgage, the capital growth of property values provides equity growth. Although an exceptional year, 2021 saw an increase of nearly 10% in average UK house prices. According to experts, house prices will continue rising over the next five years (albeit at a lower rate). So, rather than using cash savings, many landlords simply wait for equity to build up in their properties and then use this to fund the purchase of more investments!
It’s worth mentioning that you can raise this money for most legal purposes and are not restricted to property investment. As some lenders are more open to these alternatives than others, I’d recommend you speak to a specialist broker to ensure you access the suitable lenders.
Future-Proofing Your Portfolio
An extension of capital raising, and something that is on the minds of many landlords as we enter 2022, is future-proofing your buy to let properties ahead of the incoming changes to EPC regulations. You can read more about this legislation change here, but to summarise: minimum EPC requirements for BTL property is rising from ‘E’ to ‘C’ for all new tenancies in 2025 and all existing tenancies in 2028. The Government currently offers no financial assistance, so landlords will have to find ways to fund the necessary energy efficiency improvements themselves. I want to urge all landlords to start planning for this now, rather than leaving it to the last minute and facing higher costs or the possibility of un-mortgageable properties. Therefore, a portfolio review is a fantastic place to start! Using the EPC register access we have, I can assess the total expected costs and include this in the review, making suggestions about where you can release the necessary funds from. This will help you form a clear picture of the task at hand and ensure you make sound financial decisions.
What’s the value of a portfolio review?
Hopefully, the above explains the value offered by a portfolio review. The monetary value differs hugely depending on the portfolio size and properties included, but cash savings for like-for-like remortgages can range from thousands to hundreds of thousands.
How much does it cost?
Completing a portfolio review involves specialist knowledge and can be very complex but provides you with quantifiable value. However, our fees only start once you pursue formal finance applications with us. We charge an admin fee for securing a Decision in Principle (DIP) and a broker fee once we’ve secured you a formal mortgage offer.
How long will a portfolio review take?
Once we’ve received a completed portfolio review document from you and a clear objective for the review, I expect to provide you with some indicative options within two days (this may also depend on the size of your portfolio). If you choose to proceed, we will seek to get the DIP(s) secured within the next couple of days and go from there. Ultimately, the whole buy to let mortgage process usually takes six to eight weeks, depending on the case’s complexity.
What to do next
2nd February 2022