Property Portfolio Remortgage
Portfolio re-mortgages require a strategic approach, considering up front costs and product fees it is key that we do a true cost against all products on the market. Whilst some lenders might offer bespoke products, illustrated manually, others may offer products for portfolio re-mortgages against their standard range. Below, we will share our hints and tips of how we minimise the costs for our clients on portfolio re-mortgages, by isolating commercial properties on their own re-mortgage facility and how we compare leading options, before recommending a product, as well as going in depth about criteria with some portfolio mortgage lenders.
Residential properties can usually be eligible for lower interest rates on portfolio remortgaging as they are classed as a lower risk property to a mortgage lender. Additionally they usually give more functional options in the mortgage process, such as Automated valuation methodology (AVM). AVMs allow us to get a digital valuation which can reduce the up front costs of your portfolio remortgage but also increase the speed of the return. Many lenders use data from Hometrack for portfolio remortgages, there is not always enough data on Hometrack to give a valuation on some properties and in this case, you might need a physical valuation on those that fall outside of adequate comparable properties digitally. Occasionally we are able to offer portfolio remortgage options with residential properties without valuation and legal charges, however, Mortgage Lane has a duty of care to our clients to reduce the overall cost of the remortgage over the fixed term and therefore we will always compare the overall cost of products competing which will include all upfront costs such as product fees, valuation fees and legal charges to give you detailed advice on your portfolio refinance.
Commercial properties as with Semi Commercial, we often split away from residential assets on portfolio refinancing in order to secure the lowest rates against the residential aspect of a portfolio owned in the same entity, isolating it to a separate mortgage facility. In the case where borrowers are looking to refinance a pure commercial portfolio where no other asset classes are owned, or if we are splitting away commercial assets on their own commercial mortgage, this can also have benefits to valuation methods and options available. Many borrowers are looking to achieve investment valuations on their commercial property and some lenders might only offer this for 5 units, other lenders may offer investment valuations for one single unit but they are less common and will also come with other criteria to meet eligibility. Below in our FAQ, we got into depth about how to achieve a Market Value 1 (MV1) investment valuation against your commercial property and what criteria you need to meet to make sure you are eligible.
Semi commercial properties can sometimes be eligible for buy to let interest rates, especially if the majority of the asset is Residential. However, in other cases they might not be eligible for the same rates on remortgages, therefore if you do have Semi commercial assets owned in the same ownership types, occasionally we may split these away from your residential properties and apply for separate semi commercial mortgages in order to reduce the overall costs charged against the residential side. Occasionally it might be more cost effective to consolidate all asset classes into one mortgage and sometimes customers opt for this regardless for ease of application, but more often we do see these split into separate mortgage facilities.
QUESTIONS ABOUT PORTFOLIO REMORTGAGES
With hedging for portfolio re-mortgages, they are most common with larger facilities which usually include portfolio mortgages. We see this as an option for savvy property investors that look at all options which include fixed rates, swaps or caps, these are usually the three options that you have when hedging your interest rates.
hen securing a portfolio re-mortgage with a bank, you typically have the option to choose between variable interest rates, fixed interest rates, or a combination of both.
For loans with variable interest rates, like those tied to the Base Rate or LIBOR, you might consider hedging products such as interest rate swaps or caps. These financial instruments offer protection against increasing interest rates. Each hedging product has unique features, and we can refer you to a third party company to provide alternative options with a detailed explanation of the associated risks and benefits.
Fixed interest rates, commonly known as Fixed Rate Loans, also carry certain risks. Similar to the previously mentioned hedging products, it is crucial to secure these rates at favourable market conditions.
The hedging process usually starts with your bank presenting various hedging options, including swaps, caps, and Fixed Rate Loans, on a non-advisory basis. You will need to evaluate these options and select the hedging product that best fits your needs. The final step typically involves a live recorded call to lock in your chosen hedge at the current rate or premium.
Mortgage Lane are not able to give advice on hedging, but we may refer you to a suitable specialist that is able to assist you. We recommend you seek advice from relevant professionals when considering interest rate hedging against your portfolio re-mortgage.
Sometimes broker fee and legal costs on portfolio re-mortgages can indeed be lower than costs in comparison to using separate mortgages and lenders for each property. This is due to a reduction in product advice, and loan facilities which can make the upfront costs more economical than splitting into separate loans with different lenders.
For Buy to Let Property Portfolio Re-mortgages, rates are currently starting at 5%. This product is suitable for residential buy to lets owned in the same entity.
Yes you can get both capital repayment and interest only for portfolio mortgages. Most of our clients opt for interest only. It is very common for lenders to approve interest only on portfolio mortgages, including remortgages, this also means that you are only repaying the interest owed on the principle loan amount which will mean that you will owe the full amount borrowed at the end of the term, unless you make any overpayments. If you are borrowing £100,000 at 5.2% then your monthly payments would be £433.33. Lenders usually accept “Sale of security” to be the repayment type of the interest only mortgage, however, most people usually remortgage before the end of the term.
Traditional portfolio remortgages usually can expect a mortgage offer within 4 weeks of application, however, this does vary amongst borrowers and will depend on the availability of valuers in the specific area of the assets. It is important to provide tenancy agreements, bank statements evidencing rental income and to make valuation payments promptly to maximise the speed of application.
We arrange cost-effective Portfolio Landlord mortgages for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
We assist our clients with portfolio landlord mortgages in England, Wales, Scotland and Northern Ireland.
Yes, some portfolio mortgage lenders provide a 10% overpayment facility annually.
For example, if your principal loan is £125,000, you can make overpayments of up to £12,500 per year without incurring penalties during your fixed term.
However, it’s important to note that many lenders are removing this feature from their products. Therefore, it’s always advisable to check to avoid paying exit fees on repaid amounts.
We also assist many clients who want to incorporate their property portfolio into a limited company, or sometimes transition from a partnership to an LLP using Portfolio Mortgage Lending. If you are utilising any form of incorporation relief and have received tax advice, it is crucial to inform your broker early on. This allows confirmation with potential lenders that they approve of the tax method, as it may also impact your stamp duty transaction upon completion. Since tax is a legal aspect of this process, we always recommend seeking advice from a qualified tax expert before committing to any incorporation relief tax strategy.
Stress testing on portfolios will vary depending on ownership types and also product choice. For example limited company owners and basic rate tax payers that own their property in personal name, might be stressed as follows for a £100,000 loan with a BTL property earning £550 per month, with an interest rate of 5.2% fixed for 5 years (annual rent / 1.25% / 0.052) = max loan. The calculation would be £6,600 / 1.25 / 0.052 = £101,538 and therefore this example would be affordable for a 75% product.
However, higher rate taxpayers, lending on a 2 year product for the same example might be stressed as follows, where the interest rate in 5.5% for a 2 year fixed £6,600 / 1.45 / 0.075 = £60,689 which is a reduced loan size as stress testing is harsher, both for higher rate tax payers owning in personal name (145% rental coverage) and the stress rate adds a 2% loading to the rate payable, owing to a less generous loan size.
How does stress testing work for LLP owned portfolios?
LLPs are usually stressed based on the individual tax status of each partner, some lenders might blend this also. For example, two borrowers, one partner being a higher rate tax payer and the other a basic rate tax payer, might be blended between 125% and 145% and therefore the rental coverage used in the assessment might be 135%
It is important to consult with your mortgage broker or your bank when re-mortgaging a portfolio owned in an LLP due to specific affordability assessments which vary amongst lenders.
Portfolio re-mortgage lenders usually lend up to 75% LTV, however, this can sometimes be up to 85% depending on the lender and the financial landscape at the time.
Some lenders offering portfolio mortgages and remortgages might have a minimum income requirement of £25,000, however, most do not have a minimum income requirement. So if you are not drawing much out of the portfolio, then there will still be mortgage or remortgage options available to you.
Sometimes portfolios have their debt spread amongst all properties owned within the same entity. This is not always needed as most lenders price their lowest product against 65%LTV, this means that if you are geared at 30% we should be able to achieve the same loan size, on half the amount of properties in the portfolio. In turn this means that we are able to achieve savings on valuations and legal costs as there are less properties and therefore less surveys to instruct and less legal charges to lodge. This can be helpful to portfolio investors looking to remortgage and to also reduce the upfront cost bearing that comes with switching lenders on your portfolio.
It is important to note that portfolio landlord mortgages are not covered by the Financial Services Compensation Scheme, so borrowers should ensure they are dealing with a reputable lender.
Concentration refers to the proportion of properties a portfolio landlord holds in a specific location, such as a street or block. High concentration levels can raise concerns for lenders due to potential market impact and risk exposure, this can also be the case for lenders already lending to a large percentage of properties in the same street, or block. Applicants looking to increase that percentage will be starting from the percentage that already exists and therefore they will be able to borrow against properties within the difference of the existing concentration and their maximum exposure.
Lenders vary in their policies regarding property concentration. Some may set strict limits, like allowing no more than 10% ownership in a particular area to mitigate risk. Others might adopt a more flexible stance, without rigid concentration requirements.
Like residential mortgages, some portfolio landlord mortgage lenders accept applicants with adverse credit histories. Whether you have missed payments, CCJs, defaults, or even an IVA, we can find a suitable portfolio landlord lender for you. If you have been discharged from bankruptcy, your options will improve after three years and even more so after six years.
A portfolio landlord mortgage is designed to purchase or remortgage a property, whether for Buy to Let or Commercial use.
Financing for portfolio landlords can be more complex, necessitating advice from an expert mortgage professional. For instance, many High Street banks have stricter criteria and often do not lend to applicants owning four or more mortgaged properties. We assist a wide range of investors by accessing an extensive network of High Street and specialist lenders to find the most suitable lender for your needs.
Is there a maximum amount of properties I can have on a portfolio remortgage?
No.
Some lenders impose maximum property limits when approving applications. However, many lenders have numerous conditions when offering mortgages to portfolio landlords.
Following the changed in PRA requirements, each mortgage provider must assess portfolios of individuals owning four or more mortgaged buy-to-let properties. Although precise guidelines have not been issued, lenders are required to evaluate portfolio landlords in several areas, including portfolio rental cover, gearing, and their assets, liabilities, and cash flow, typically through a ‘Business Plan’. We can assist you in preparing business plans that accurately and positively showcase your investment experience.