Buy-to-let mortgages for experienced landlords
For many people, taking the plunge into buy-to-let property for the first time is the biggest step. Once they’ve made one buy-to-let investment, building a portfolio of properties seems much less daunting.
In fact, the portfolio approach can make a great deal of sense. If there are problems with one property – difficulties finding tenants, say, or a major maintenance issue – you may have income from the rest of the portfolio to fall back on. And if you’re able to buy a range of different types of properties – from smaller flats to larger houses, for instance, or homes in different parts of the country – you’ll reduce the risk of being hit hard by problems in one area of the market.
However, arranging the finance for a portfolio of properties can get complicated. You will probably need buy-to-let finance for each property you buy, and there’s a good chance you’ll end up with mortgages from several lenders, depending on who is offering the best deals each time you buy. You’re also more likely to run into some of the restrictions lenders impose on buy-to-let borrowers.
Buy-to-let mortgages for the portfolio investor
Whether you’re arranging your first buy-to-let mortgage or your 100th loan, you’ll still face the same basic hurdles. Lenders typically charge 1 to 2 percentage points more on buy-to-let mortgages than standard residential loans and they’ll expect you to be able to find a larger deposit – you’ll typically need at least 25% of the purchase price, or more to secure the best deals.
Lending criteria may also be more exacting. In September 2017, the Bank of England’s Prudential Regulation Authority introduced stricter rules for landlords with more than four properties. Lenders will now require the landlord to present a business plan for each property in the portfolio, including cash flow projections.
Previously, landlords were often able to rely on the overall performance of their portfolio to secure lending. Under the new rules, lenders will require each property to cover a minimum of 125% of the mortgage payments (or up to 145% in some cases). Exact criteria, however, will depend on the lender.
A limit on numbers is another challenge many portfolio buy-to-let investors come across. Several lenders won’t let you put more than a set number of properties on a single mortgage. Or they’ll set a maximum number of mortgage agreements they’ll offer you, or even a maximum total amount they’ll loan you. Often the restriction will apply across several lenders in aggregate, where they’re part of the same company.
Also, check whether individual lenders have any restrictions on the type of property they’ll lend against. Some get nervous about former local authority-owned properties, while others aren’t keen on new-build flats. This can restrict your choice of lender as your portfolio diversifies.
Age is another issue to consider. As you get older, it may become more difficult to find a buy-to-let mortgage as some lenders set maximum ages by which they expect the loan to be repaid – anywhere between 70 and 90. This can be an issue if you’re depending on a buy-to-let investment portfolio to supplement your pension income.
It makes sense to take independent advice before taking out any buy-to-let mortgage and this remains just as important as your portfolio expands. An independent adviser can help you overcome some of the problems serial buy-to-let investors may encounter, and help you find the best possible deal each time you want to expand the portfolio.
Our expert mortgage advisers will search thousands of mortgage deals made available to us and pick out the one that’s right for your circumstances.