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What is a Buy to Let Portfolio Mortgage?
A Buy to Let portfolio mortgage is a mortgage product designed for those landlords who have, or plan to have, two or more properties under their ownership, and will cover more than one property.
Treated as a kind of ‘mortgage account’ by the lender, a portfolio mortgage can incorporate mortgages for a variety of properties, possibly with varying interest rates across the grouping. The rental income from all the properties and the loan-to-value rates are averaged out across the portfolio, so that the total surplus equity can be used in the borrower’s favour when looking to add more dwellings to the group.Read More
One example would be a landlord whose portfolio has a total value of £2.5M, with an outstanding amount on the collective loan of £1.5M. If we assume that the maximum loan-to-value ratio is 75% (in this case a value of £1.875M), this would give you a surplus of £375,000 with which to extend your portfolio further.
And if this landlord buys a property for £200,000, they would still have an available credit of £325,000. This is because once the new property is added, the new total portfolio value will be £2.7M, with an outstanding loan amount of £1.7M. Again, with a maximum loan-to-value ratio of 75%, this leaves £325,000.
In this way, you can see that the more properties a landlord owns, the greater the risk is spread across them. Not only does it become easier to use the total credit facility afforded by this kind of portfolio management, but it allows for income from all inhabited properties to make up the difference during periods where income from one or two properties may drop due to standing vacant.
Portfolio Mortgage Information
The Mortgage Centres - Helping Portfolio Landlords
As an alternative to stocks and shares, Buy-to-Let properties can appear to be a very attractive investment, and as tangible assets they do indeed work out very successfully for many people, from new investors to experienced landlords.
However, the financial landscape tends to shift and change over the course of time, and so it is always worth paying attention to how your portfolio of Buy-to-Let properties can best be managed.
Tax changes that affect Buy to Let Landlords
In 2020, the final phase of a raft of taxation rules designed to close tax incentives for Buy to Let landlords is coming into force. First announced in 2015, and slowly becoming part of ongoing legislation since 2017, these rules will be sure to have an effect on your cash flow as a portfolio landlord. Previously, landlords whose earnings fall within the higher tax bracket (40%) and additional rate (45%) were able to claim tax relief on mortgage interest at those rates. However, new regulations state that all tax relief on mortgage interest will rebated only at the basic rate of 20%.
Meanwhile, a slight balance to this was introduced in the 2017 budget, with changes to Corporation Tax. The rate was lowered to 19% and is set to drop again to 17% in 2020. If you operate your Buy to Let portfolio business as a limited company, then this rate will apply on annual profits up to £300,000.
Mortgage Broker for Portfolio Landlord
If you’d like to explore the possibilities of a portfolio landlord mortgage, then it’s important that you seek professional, experienced advice. Our specialist team at The Mortgage Centres has an in-depth knowledge and understanding of every aspect of the mortgages market – all the differences and unique deals within the sea of lenders, products and lending criteria – and will be able to offer valuable guidance as to where to find the right mortgage arrangement to meet your needs.