Buy To Let landlord? How to raise finance on multiple properties

06-March-2019
06-March-2019 20:04
in General
by Jennifer Stevenson

You can just sit back and watch your rental income coming in. But the most successful landlords make their property equity work hard for them.

Ongoing refurbishments need to be paid for. Upgraded properties can command higher rents, and unmissable purchasing opportunities can arise at any time.

If you’re considering raising finance on your portfolio of rental properties, what is it that you’re looking to do?

Raise finance for building works / renovations

You may just need to keep up with ongoing repairs and refurbishments. And you may be finding that there’s a respectable return to be made by just sticking to doing what you know well. (Student lets, or flats for young families…)

But rental markets change, and it pays to keep in step (or just ahead of) localised demand.

Substantial renovations which add facilities (an improved kitchen or another bathroom) can project a property into a higher rental bracket. Your local estate agent will be able to advise on the renovations which really add value.

Adding a bedroom to turn a single-occupancy let or a four-person houseshare into a five-plus HMO (House in Multiple Occupation) the rental returns really start to stack up, with the extra tenant income providing a much-needed buffer against rental voids or substantial repair bills.  

Refinance to get a better rate

Agile portfolio landlords are quick off the mark to avoid falling onto a mortgage lender’s standard variable rate at the end of term.

  • Substantial finance savings can be made with the help of an astute mortgage broker who will look at all the options available to you in the market.
  • That may mean reallocating your equity across your portfolio so that some properties are mortgage-free (which some lenders like to see), and ensuring that you’re maximising the LTV potential of each property.

Or a broker may divide your finance amongst different lenders in order to spread their risk.

Raise finance to purchase further properties

You snooze, you loose. Successful landlords know that profitability comes from buying at the right price, and the opportunities to purchase the right kind of property are surprisingly thin on the ground.

If you refinance to access equity you’re able to seize the opportunities when they arise.

Refinance-27-buy-to-lets-in-London-LINK_opt

Refinancing 27 BTLs to fund residential purchase

Our client had 17 buy-to-lets in his own name, and a further 10 held by his limited company. He was looking to raise finance against his portfolio top buy a London home, but not every one of his properties was profitable, and he was unable to meet the affordability criteria of the high street lenders he had approached.

We took his application to a private bank who applied a bespoke stress test, and topsliced his personal income to make up the shortfall in rental coverage ratio.

Refinancing at a three-year fix (with no-charge exit after two years) released £7.35M to put towards the new home purchase.

What kind of finance do you need?

Mortgage finance for portfolio landlords

There are issues with financing large portfolios.

With more than 10 properties in your portfolio you’re looking at a very select group of specialist lenders. Their major consideration will be how much of your portfolio they’ll be willing to finance.

Rates for Multi-Unit Freehold Blocks, (owning a large property divided into separate self-contained flats, rather than run as an HMO) can be very attractive. These propositions offer greater security for lenders: in case of any repayment difficulties, they know that the sale of one or more of the units may be all that’s need to turn a borrower’s financial situation around.

Second charge borrowing

This could be the option you want to look at if you want to access more substantial funding than might be available to you via a personal loan, for example, but you don’t want to extend the borrowing on your properties.

It may be that your properties are all on attractive fixed rates that you don’t want to touch. Or your first-charge lender may be unwilling to advance funds for the purpose you’ve specified.

A second charge mortgage will be at a higher rate than your first-charge lending, but it can be more flexible:

  • Second-charge lenders may work to a 125% rental coverage, with no additional stress test

More about second-charge lending for landlords

  • They may be more amenable to top-slicing earned income to top-up a shortfall in rental income

More about top-slicing in BTL borrowing

Bridging loans for portfolio landlords

Short-term bridge finance can be a useful facility for landlords building their portfolios:

  • You may need to act quickly to beat the competition for a purchase
  • You’ve found that you can really build the value of your portfolio by buying properties in need or substantial improvements before they can be rented
  • And you would rather have the work done to your specifications

A property that needs major renovations (for example it lacks a functioning kitchen or bathroom) before is considered to be not in “mortgageable condition”.

Bridging finance can finance the purchase and building works until the property is in a condition to be mortgaged.

How much will it cost me?

Get an immediate indicative cost with our free online Bridging Loan Calculator:

Bridging loan Clifton Private Finance

Borrowing issues for portfolio landlords

1 The size of your portfolio 

For the purposes of oversight by the Prudential Regulation Authority (PRA), a portfolio landlord is defined as owning more than four rental properties.

In terms of finance by a single lender, many lenders are reluctant to lend to landlords with more than 10 properties.

Of the lenders who are ready to lend against larger portfolios, their concern will not be the overall size of your portfolio so much as the number of properties they are willing to lend against.  

2 The profitability of your total portfolio

Following new regulations issued by the PRA at the end of 2017, lenders are now required to consider the profitability of every property in a portfolio, not just the projected rental returns on a specific property being refinanced.

Your broker may be able to find a lender who is willing to take a broad view, and possibly apply other earned income the affordability calculations.

It may be necessary to rearrange the balance of finance between properties in your portfolio, or to sell a property that’s underperforming.

Age and income

Lenders will be considering your age, but there are lenders who are ready to extend excellent terms to older borrowers. They’re aware that many landlords enter the buy to let market later in life, and also that valuable experience, and substantial portfolios, are built up over years.

Many lenders like to see additional, earned income, even if they are not using it in top-slicing calculations. This can be an issue for full-time, professional landlords, and also for post-retirement landlords. But a good broker will be able to find you a lender who will consider your particular circumstances.

More details about top-slicing for BTLs

Get expert property funding advice

Portfolio finance is complex. Clifton Private Finance has extensive experience in sourcing bespoke, affordable finance for large and smaller portfolios. Call us to arrange a convenient time to discuss your situation in detail with one of our portfolio finance specialists:

0117 959 5094 

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