Portfolios and large loans

Firstly, with a large portfolio, you need to have the most cost-effective finance for each property - which can be difficult if you are building up your property over a matter of years - as market conditions may change drastically.

Secondly, rules laid out by the Bank of England's Prudential Regulation Authority mean any landlord who owns four or more mortgaged buy to let properties must submit income and mortgage details on all of them every time they either refinance one or purchase a new property.

It is no longer enough for lenders to assess a buy to let mortgage application based on the rental income and property value of the property they are lending against. The rules require lenders to look at landlords' full financial exposure when assessing them for a mortgage - in the hope that riskier lending is avoided. Mortgages for portfolio landlords are, therefore, more challenging to arrange - and many lenders no longer service the sector at all.

Thirdly, it can sometimes be essential to refinance property - to release equity built up in one or more existing properties to acquire a new one.

Fourthly, lenders can become wary about large-scale lending - portfolios that carry more than £million of finance are coming under particular scrutiny.

At Rangewell we can provide solutions.

Because we work with lenders across the entire market, we know those that are able to look at the greater administration required to provide funding for large portfolios, as well as the possibilities of using a number of lenders to provide funds. 

It may be possible to use a buy to let mortgage or a commercial mortgage - or a combination of mortgage types - and to provide large-scale lending.

What is a Buy to let Mortgage?

If you buy residential properties with conventional mortgages, the lender will include clauses that will prevent you from letting them out. A buy to let Mortgage contains no such restrictions and is specifically defined as a loan for buying or refinancing a property that is let to tenants rather than lived in by the borrower. As a business loan, buy to let mortgages are not subject to the same regulations as residential mortgages. This means that they are more flexible but rates and fees are typically higher than those you would find with a standard residential mortgage.

Buy to let mortgages are based on the revenue your property will generate. The mortgage lender will make a rent to interest (RTI) cover calculation. This means that you will need to show that you can obtain enough rental income from a tenant to cover the interest on the mortgage. RTI cover calculations vary between lenders. The rental income usually has to be between 125% and 130% of the monthly mortgage repayment. Many lenders also require a minimum income of £25k per annum in addition to the income made from rent. 

Multiple buy to let mortgages can be built up over time - but there may be an upper limit to the amount of property or level of lending you can have with a buy to let mortgage.

What is a commercial mortgage?

Like buy to let mortgages, commercial mortgages are secured on the property itself - but there may be fewer restrictions on how you may use the funding to structure your portfolio.

The rates and terms for a commercial mortgage are arranged individually and reflect the business situation of you, the borrower, and the size and potential of your portfolio. There will be valuation, arrangement and legal fees and additional costs for the services of professional advisors which will add substantially to the initial costs. 

Some lenders have a minimum of £75,000 or more, but there is no set upper limit on what you can borrow with a commercial mortgage. So, if your investment plans involve building up a large portfolio, and particularly if it includes a mix of residential and commercial properties, it may be possible to provide the level of funding you need for your entire property holdings with a commercial mortgage.

However, you need to make a large contribution from your own funds - lenders will not offer 100% finance with a commercial mortgage. Typical loan-to-value ratios may be around 70% - although there may be some lenders who will be prepared to improve on this.

Commercial mortgage deals can be either fixed-rate or variable rate, and you may be able to choose between a repayment mortgage option where you pay the capital and interest back each month, or an interest-only mortgage where you only pay the interest - reducing the cost of your investment - although you will need to plan a way to exit the agreement, possibly by selling on the property.

Refinancing property

If you already have built up a large property portfolio over several years, you will be fully aware that even a small difference in the interest rate will make a substantial difference to your monthly repayments. Getting the most competitive loan rate can make an important contribution to your profits. Property remortgaging or refinancing could help you reduce the costs you make each month, by letting you pay off an existing loan arrangement and replace it with a new one at a lower cost. Your properties will probably have appreciated in value and the chances are that you can get a better deal thanks to the lower LTV - especially if you have an entire portfolio to refinance.

But there can be another reason to refinance. If you find an investment opportunity - a property that you want to add to your portfolio - you may want to find the most cost-effective way to fund it. Your existing properties may have increased in value since you acquired them and this means that they represent excellent security for new lending. By arranging to refinance some or all of your existing properties, you may be able to raise a large amount of cash at a very competitive rate.

Getting the help you need

Building up a large portfolio inevitably means large-scale funding and high costs. It is important to have expert help to get the kind of funding that is right for your investment plans - whether you are expanding your portfolio or refinancing your existing property investments.

Lenders will vary greatly in what they offer and, as you know, even a fraction of a percentage point can make a substantial difference to what you actually pay each month. This means that getting expert support to find the right deal is essential to save you money.

The simple answer is to come to Rangewell.

At Rangewell, we help investors of all kinds find the finance they need. We cover the entire UK lending market, which means we can help you find the most cost-effective property finance for all property investment needs, and help you build the scale of portfolio you want.

Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash too.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.