Buy to Let Mortgages For Property Portfolio
If you’re a landlord who has or is planning on having more than one buy to let property, then you’re probably thinking about what mortgage options are available to you.
Portfolio mortgages are designed specifically for landlords who want or have more than one property in their portfolio.
Tax relief changes in 2017
From 2017, landlords can no longer deduct their entire finance costs from their property to calculate their profits. Many buy to let owners may see their tax bill increase heavily next year, especially those with multiple properties.
Unlike private landlords, limited companies’ finance costs are unaffected by the recent mortgage interest tax relief changes. This means that only the profits derived from limited companies’ buy to let properties are taxed.
This has led to a number of private landlords with multiple properties looking to set up their own limited company, as a way to avoid the effects of the new buy to let rules.
If you wish to set up a limited company to combat the effect of the new tax rules, it is important to consider the associated costs.
Changes in 2017 that affect buy to let mortgages for property portfolios
From September 2017, additional changes to how buy to let mortgages are regulated will come into effect. This will take away some of the benefits afforded to landlords in previous years and will make it more difficult for landlords to source buy to let mortgages from traditional lenders.
• Your entire portfolio will be reviewed: –Traditional lenders will have to look at a landlord’s entire property portfolio, when deciding whether to provide a mortgage for a buy to let property.
As a result, the rental and loan to value can no longer be averaged across a landlord's entire mortgage portfolio. This could affect the landlord’s application, particularly if some of the rentals are more profitable than others.
For example if a landlord has 5 properties and only 4 are generating rental income in excess of mortgage payments, but the shortfall is covered by the remaining property, their application may not be successful.
• A stricter stress test: – Lenders will have to review new mortgage applications to make sure the borrower can afford the repayments in the event that interest rates hit 5.5%.
As such, there will be a requirement for the landlord to provide full disclosure of financial records detailing every buy to let in their property portfolio.
In previous years, landlords were able to borrow up to 75% of the portfolio’s value without proof of the rental income. Due to the new criteria, applications will take longer to approve with lenders reviewing the landlord's rental income and considering whether it is sufficient.
• New rental coverage ratio: Lenders will also have to review the landlord's application to ensure it has a rental coverage ratio of at least 145%.
This may make securing finance from a traditional lender harder for landlords, as prior to the recent changes the rental coverage ratio only had to be above 125%.
Deciding to expand your product portfolio is a big investment decision, and as a result the risks and costs should also be taken into consideration.
In addition to this, we suggest that you seek advice from a mortgage broker before making the decision to increase your products portfolio. That’s where we can help!
Our buy to let portfolio mortgage service
We have an expert buy to let portfolio mortgage advisory team, who are experienced helping experienced buy to let investors achieve their mortgage goals and helping them to make the best decisions for their future.
We provide a whole of market service, which means we work with most UK lenders and have access to leading portfolio mortgage rates that you will not be able to find on the high street.
If you would like to find out how fair mortgages can help you, fill in our online contact request form to request a call back for a free initial consultation with a fair mortgage advisor, or call us today on 0117 403 4222.