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Similarly, to buy to let and HMO mortgages, many prospective landlords see expanding a portfolio of properties as a lucrative investment strategy, as it means numerous income streams can be generated through a number of rental payments. As with a standard buy to let mortgage, portfolio landlords will typically opt to arrange their mortgages on an interest-only basis, meaning the monthly payments are only made up of interest and the total value of the mortgage is repaid upon redemption of the loan or at the end of the term.
What is a portfolio landlord?
A client is considered to be a portfolio landlord when they have four or more mortgaged buy to let properties. This includes properties owned in joint names, or under a limited company. The mortgages will typically be arranged on each individual property as opposed to the value of the portfolio as a whole, although there are circumstances where assets can be securitised in more creative ways.
Many lenders have a maximum amount of mortgages that they will provide to one client or limited company, with many banks also limiting the number of mortgages a client can have in total including with other lenders. On the other hand, some banks will accept a client with hundreds of mortgaged properties within their portfolio, as well as some being able to consider a mix of property types such as HMO, Holiday Let and standard Buy to let.
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How are mortgages for portfolio landlords assessed?
In comparison to standard buy to let mortgages, a mortgage for a portfolio landlord will need extra checks to be carried out and there will be more stringent rules on whether they are happy to lend to the client in question. Namely, a stress test calculation will be carried out on the entire background portfolio of properties, as opposed to just the property being purchased. This is in place to ensure the total mortgage payments in the client’s name do not exceed their level of rental income across all properties. Lenders may want to see a cashflow forecast or business plan to evidence the strength of the portfolio, as well as a portfolio spreadsheet where they can examine the rental yields and mortgage costs on each property. Lenders typically also require a client to have previous letting experience for a minimum amount of time, rather than a new landlord who has recently bought their first rental property.
If you’re thinking of expanding your portfolio or are looking for some advice on your existing mortgages as a portfolio landlord, get in touch with our specialist lending team today for expert advice tailored to your needs.