Building a buy to let portfolio

Buying residential property for letting out - buy to let - has become a key part of many people's investment plans. Buying a single property can mean steady returns with the right tenants, but building a portfolio can make those returns even more worthwhile.

However, the popularity of buy to let has led the government to introduce some complications into the rules about finance for buy to let - especially if you are determined to build up a buy to let property portfolio. Landlords with four or more buy to let mortgages face tough lending assessments - as well as a need to provide competitive funding.

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 refinance an existing property 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 a landlord's full financial exposure when assessing them for a mortgage - in the hope that riskier lending is avoided.

So, to secure an offer of a mortgage on an additional property for a portfolio of 10 mortgaged buy to let properties, you will need to provide evidence of the rental income and mortgages on all 10 properties.

Mortgages for portfolio landlords are, therefore, more challenging to arrange - and many lenders no longer service the sector at all.

At Rangewell we can provide answers - and access to the funding you need.

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 growing a buy to let portfolio, as well as the possibilities of using a number of lenders to provide the necessary funds.

It may be possible to use a buy to let mortgage or a commercial mortgage - or a combination of mortgage types.

What is a Buy to let Mortgage?

If you buy a home with a conventional mortgage, the lender will include clauses that will prevent you from letting out the property. A Buy to let Mortgage contains no such restrictions, and is not subject to the same regulations as residential mortgages.

This means that they are more flexible, but rates and fees will usually typically higher than those you would find with a standard residential mortgage.

There is also an important difference to a residential mortgage. Residential mortgages are based on your personal income. Buy to let Mortgages are based on the revenue your property will generate for you - the level of rent it will attract.

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.

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.

However, the rates and terms for a commercial mortgage can be arranged individually, and your financial position and the size and profitability of your existing portfolio will be taken into account.

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. You pay the capital and interest back each month with a repayment mortgage, helping you buy the property, while with an interest-only mortgage, you only pay the interest each month - reducing the cost of your investment, although you will need to plan a way to exit the agreement, possibly by selling on the property when the time comes.

Refinancing a property portfolio

If you have already built up a large property portfolio, you will know 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 repayments you make each month.

It works by letting you pay off an existing mortgage arrangement and replacing it with a new one at a lower cost. Your properties will probably have appreciated in value, and we may be able to help you secure a better deal thanks to the lower LTV - especially if you have an entire portfolio to refinance.

But there is another reason to refinance your property when you are a portfolio investor. Your property has built up equity while you have owned it - by refinancing you may be able to release some of that equity, providing cash to allow you to acquire additional property.

Getting the help you need

All types of property investment inevitably involve high costs, and when your plans involve buying multiple properties, it is important to have expert help to get the kind of funding that is right for you - whether you are expanding your portfolio or refinancing your existing property investments.

Lenders will vary greatly in what they offer, and even a fraction of a percentage point can make a substantial difference to what you actually pay each month. It means that getting expert support to find the right deal - or deals if you are building a portfolio over time - is essential to save money.

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 to help you make the most of your buy to let plans Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash.

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