A portfolio landlord is a property investor with about four or more buy-to-let mortgaged properties. He may also have seven or even more remortgaged applications without raising any capital. Since the year 2017, banks have been encouraged to apply new procedures whenever they are processing applications from portfolio landlords. Having an understanding of who a portfolio landlord is and whether they can still get a mortgage is important.
The property that is owned by the portfolio landlord may include different types of properties. They may be property owned through a limited company; holiday lets, and consent to key properties. They may also include all the buy-to-let properties that are either jointly or solely owned by the applicants. It really doesn’t make any difference if in case two of the properties are in your name or in a limited company. For example, if in case you own two in your name and two in a limited company where you might be a shareholder or director, you are considered as a portfolio landlord and assumed to own four properties.
If in case you have one property in your name and three in a limited company; you are still considered to own four. It’s still the same case if you have three in your name and one in a limited company. You are still considered a portfolio landlord. For tax purposes, you and the limited company may be deemed separate. However, that is not the same case when it comes to mortgage lending.
Can Portfolio Landlords get Mortgage?
When you are a portfolio landlord, lenders are required to have a look at your portfolio as a whole. They do this when deciding to offer you credit on any individual property. Basically, when making an application you should; make a case for the new loan with your entire rental business in context. It should not just be about the property that you are purchasing.
The majority of buy-to-let lenders are regulated by the Bank of England’s Prudential Regulation Authority (PRA). From 2017, the regulatory body insisted that when applying for a loan, the rent should be able to cover for at least 145% of the mortgage payment. When considering applying for a mortgage as a portfolio landlord, the Mortgage Works Nationwide will then stress test your entire portfolio at a rate of 145%. This will go with a national interest rate of 4.5% if you have properties that range at 4 – 10.
The rate changes to 145% and 5.5% if you have 11 properties or even more. Some lenders may also ask to have a look at a level of LTV across the entire portfolio like 70% – 75%. Every lender is free to ask on what they might want to see before they decide on whether your portfolio and the rental business are capable of sustaining another mortgage.
Portfolio landlords are therefore faced with tougher rental cover tests alongside more questions that they are expected to respond to. The rental cover stress tests and the additional tests for portfolio landlords have the potential of hindering some of the amateur investors from getting into the business.
Mortgage Rules for Portfolio Landlord
According to Prudential Regulation Authority (PRA) that’s found at the Bank of England; it’s suggested that they get to request and also consider the following;
- Property portfolio spreadsheet
- Business plan
- Cash flow forecast spreadsheet
- Income and expenditure spreadsheet
- Three months bank statements
- SA 302S alongside tax reviews from HMRC
- Tenancy agreements for all of the properties.
As much as the requirements may seem daunting when looked at, these are some of the information that you should have ready as a portfolio landlord. Your mortgage lender might already be having the information so they might just require an update of the same from you when you are making the application. All that they might need are information that they might not be able to fill in by themselves.
It’s important to note that not all of the lenders will ask for the same information. When PRA came up with the requirements; the banks responded and said that your lenders are already asking for the same information. So for the majority of the portfolio landlords, the practical effect of providing the information might be quite limited. This is due to the fact that its part of their due diligence.
Impact of the Rules on Portfolio Landlord
In some cases, it could translate to slower application processes and longer periods of time until all the documents are submitted. It would therefore mean that the lender gets to ask for more documents and information over and above what they might have previously asked for. There also exists the possibility of many loans being declined since there is a lot more that a lender might need to decide on that they might not like about the borrowers’ business.
There are high chances that if in case you get a decline then it might have not been the first time it’s happening. The bank might have in the process attached the decline to a different excuse. This is one key aspect that has the potential of deterring amateur landlords and that translates to greater investment opportunities for landlords who are serious with investment.
Types of lending that the rules don’t apply to for portfolio landlord
There is, however, some type of lending that the rules don’t apply to. These include;
- Bridging lending
- Mortgages for limited companies
- Holiday lets
- Loans that have a fixed term of five years or even longer.
If you have mortgages that you took before January 2017 then you may not need to worry. The mortgage may not meet the new criteria if in case you intend to remortgage. Those who are considering remortgaging may also not be subject to the new rules as long as they are not increasing the loan amount. If in case you are considering remortgaging and also increasing the loan amount then the new rules will apply.
Rental Cover Cap V. LTV Cap
This means that the loan-to-value (LTV) is not the only test that determines the amount of loan you can borrow or the maximum you can borrow. Having an understanding of who a portfolio landlord is should be given emphasis as that is what determines whether you are affected by the rules or not.