Portfolio mortgages can simplify finances for overseas and expat landlords holding property in the United Kingdom, as that’s what they’re primarily designed for. With recent news regarding tax and stamp duty laws, overseas landlords are forever looking at methods to increase their investment income. Further changes in 2020 will lower the amount of tax relief a landlord can claim. For instance, overseas landlords won’t be able to offset interest as an expense like previous years.
For landlords with multiple properties, or landlords aiming to grow their portfolios, a portfolio mortgage could be something to consider. Placing an entire portfolio under one mortgage can be beneficial, especially with a large number of properties.
What is a portfolio mortgage?
A portfolio mortgage allows overseas and expat landlords to place all of their buy to let mortgages under one mortgage. Portfolio finance is treated as a single mortgage account. Rather than having separate buy to let mortgage lenders for each property, the entire portfolio is undertaken by one portfolio mortgage lender, hence one monthly payment. The property portfolio is registered as a limited company and finances and expenditures are treated exactly the same as any other business model.
Property portfolio financing is a term used for when a landlord has at least four properties. Technically, a portfolio could consist of two properties, but from a lender’s perspective, they would usually class four properties to be the bare minimum for a portfolio. There is no limit to how many properties landlords can hold but some lenders do have their own internal restrictions.
If a landlord had ten properties on separate mortgages, then there would be ten monthly outgoings to multiple lenders. A portfolio mortgage allows landlords to solely focus on a single mortgage payment each month to a single lender. One monthly mortgage payment is perhaps easier to manage in comparison to multiple mortgage payments across the month.
Lenders introduced portfolio mortgages to allow landlords to hold and manage their multiple buy to let mortgages with greater clarity. Rather than having multiple mortgage statements, portfolio mortgages allow for one monthly statement and one payment, simple. Landlords with portfolios don’t have to have a portfolio mortgage and it is entirely optional.
Advantages of having a portfolio mortgage for overseas landlords
All mortgages types will usually have positives and negatives. It’s difficult to explain whether or not a certain mortgage type will be advantageous to you without understanding your personal circumstances. That being said, portfolio mortgage lenders can offer a range of advantages which are outlined below.
Make a portfolio tax efficient
A portfolio mortgage can allow a landlord to become more tax efficient. This is because of the tax changes discussed above. Funds withdrawn from the portfolio will soon be taxed as a whole, rather than paying tax solely on net income. If a landlord retains funds in the portfolio, funds can then be used to renovate or even purchase additional properties. By doing this, landlords will pay the lower rate of corporation tax as outgoings will be classed as expenses.
Simplify your buy to let finances
Rather than having multiple lenders, a portfolio mortgage allows landlords to have a single lender. A single lender across a portfolio can simplify finances in many ways, as they’ll only be one monthly payment.
Using equity to grow your portfolio
Equity in your portfolio can be utilised to increase your portfolio further. If for instance the portfolio was valued at £1 million and the outstanding mortgage balance was £600,000, the portfolio would have £400,000 in equity. Landlords can borrow against the equity usually on the loan to value across the entire portfolio.
Disadvantages of having a portfolio mortgage
There aren’t any major disadvantages as such, however it depends on how your own individual finances are structured. Using a mortgage to fund a purchase of a property is always a risk, in the case that mortgage payments can’t be met. Buy to let property is no different, as investment typically has an element of risk involved. Growing a portfolio increases further risk, as there are simply more properties involved.
In the very rare case that every single boiler needed replacing in each property for instance, this would create a large outgoing for that particular month. As portfolio mortgages operate under a single account, you wouldn’t be able to defer payments to different dates. The entirety of your portfolio payments will need to be paid all at once.
This can be a disadvantage if your finances aren’t in great shape. If you’ve got savings tucked away for a rainy day (which we advise everyone should aim to have!), then you can minimise your exposure to situations such as these. There are also possibilities for property values and rental prices to decrease, so always be prepared for worst-case scenarios.
Lenders that do offer portfolio mortgages will require landlords to have their portfolio under a limited company. Migrating properties into a limited company can be expensive. Operating a limited company does come with increased administrative duties for which they’ll be a cost. You’ll more than likely need a professional accountant for instance. Although there are tax benefits to having a portfolio in a limited company, selling a property from a limited company is subject to corporation tax and capital gains tax.
Should I get a portfolio mortgage through a limited company?
In some circumstances, it can be beneficial for tax reasons for buy-to-let investors to finance multiple buy-to-let mortgages using a limited company.
There are two types of limited company: a trading company, or a special purpose vehicle (SPV).
The most common way for buy-to-let investors to buy with a limited company is with an SPV. There are many more lenders in this part of the market than there used to be and there are plenty of lending options for both.
Therefore, buy-to-let mortgages for limited companies are now often available at similar rates for individuals looking for multiple buy-to-let mortgages.
Buy-to-let mortgage lenders for limited companies will often apply a lower minimum rental stress test than they do for individuals who are higher rate taxpayers, because of the tax advantages associated with buying and managing through a limited company.
How many buy-to-let mortgages can I get using a limited company?
There are no limits to the number of buy-to-let investment portfolio mortgages you can hold within a limited company. However, the same rules will apply when a lender is assessing your entire portfolio as part of the application, and some lenders have a limit on the exposure they are willing to take for one company and can restrict the total number of mortgages or properties.
How can I finance a buy-to-let portfolio?
There are plenty of mortgage lenders that want to help overseas and expat landlords secure property portfolio mortgages to simplify their finances and potentially increase the size of their investment.
Whether you’re looking for a second buy-to-let mortgage or to build a large portfolio, there are a couple of things you should think about.
Deposit
Unless you’re buying an investment property in cash, you will need to put down a deposit.
The minimum deposit you’ll require for a buy-to-let mortgage is usually 30% (although many lenders insist on 35% to 40%) and it’s possible to raise this with a remortgage on your main residential property (buy-to-let second mortgage), or other buy-to-lets within your portfolio.
Which lenders offer portfolio mortgage?
Portfolio financing is offered by a variety of lenders, and each lender has its own lending criteria that must be met by the applicant. We use a range of specialist lenders, non bank lenders, offshore lenders, private banks through to high street mortgage lenders.
A select number of high street mortgage lenders can also consider portfolio mortgage applications. These include:
Consider client’s personal and rental income as well as ongoing credit commitments. Underwriters will assess speed of portfolio build and capital appreciation, tenant quality and occupancy levels, use of letting/management agents, portfolio strategy and future funding requirements.
What property types can I get?
Buy-to-let portfolio mortgage products are available on most standard construction terraced/semi/detached houses and purpose-built flats.
Options may be more limited for investors who want to purchase a studio flat, ex-council property or a property of non-standard construction (e.g. buildings made from unusual materials such as concrete or timber). This is another area where it is important that you choose a lender that is able to lend on your property.
