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Are you ready to be a portfolio landlord?

property investment q&aa Apr 20, 2019

THE QUESTION

How can I learn about the pitfalls and benefits of making the step up to a Portfolio landlord?

I have been advised by my mortgage advisor that there are additional challenges gaining finance once you move to this and I am almost there.

THE ANSWER

Any mortgage broker should be able to explain how applying for a mortgage as a portfolio landlord differs.  They should know what lenders will ask for.

Once you acquire your fourth property, you are subject to portfolio landlord underwriting, without exception.

Currently, you would be viewed as an 'amateur' landlord.  You will be familiar with the hoops you have to jump through to be acceptable to mortgage lenders from the mortgages you have obtained so far.

From your fourth property onwards, lenders cease to treat you as an 'amateur' and now treat you as a 'professional' landlord, if you want to use those terms.  This is regardless of whether you are full or part-time in property.

There is some confusion amongst investors about what counts as four properties.  The Prudential Regulation Authority deems anyone with four or more mortgaged buy to lets as a portfolio landlord.  This includes those who own property in a limited company and is the aggregate number of properties held by the applicants.

If you have ever applied for a business loan in the past you will recognise a lot of similarities in the way portfolio landlord mortgage applications are underwritten.

You move from the essentially simplistic 'does the rent cover the mortgage and then some' on the specific property you want a mortgage on underwriting for 'amateur' landlords.  Now lenders will require you to demonstrate that you have a profitable business that can withstand the impact of taking on an additional liability.

It will vary slightly lender to lender, but expect to be required to provide

  • A business plan
  • Cash flow forecasts
  • Historical cash flow data
  • Tax paid on profits - SA302's
  • Submitted tax returns
  • Breakdown of property and other income earned
  • Bank statements for the business
  • Spreadsheet with your entire portfolio detailed
  • Portfolio income and expenditure statement
  • Asset and liability statement
  • ASTs for your portfolio

Regardless of the loan-to-value mortgage product you choose i.e. 75%, expect the loan to value of the whole of your portfolio to come under scrutiny.  So, if an underwriter thinks you are too highly-geared across your portfolio, they will reduce what they are prepared to lend for the latest addition to your portfolio.  In essence, taking a 75% product may not mean you are able to borrow 75%.

One lenders view is - up to 10 properties they want to see your overall gearing below 75%, but above 10 they want that reduced to below 65%.  So you can see how it might be difficult to borrow a high LTV for your 11th property.

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