Who is a portfolio landlord?

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How many investment properties does a landlord need to own, to be classified as a portfolio landlord? It is an interesting question and dependent upon your opinion, can have a number of different answers. When it comes to finance and portfolio lending, the answer becomes clearer and easier to define.

Since 30th September 2017, the Prudential Regulation Authority (PRA) defined a portfolio landlord as “borrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate.” Prior to September 2017, a lender would tend to ignore your background property portfolio and would focus their underwriting assessment on the property only being offered as security to the lender.

Post September 2017, the portfolio landlord underwriting approach changed with enhanced underwriting checks being applied by lenders. Lenders who will lend to portfolio landlords will request additional information, this may include items such as a copy of your overall property portfolio, portfolio bank statements, business plans, cash flow forecasts and statements of assets and liabilities.

If you are a portfolio landlord, as part of the enhanced underwriting checks, a background portfolio affordability assessment is generally required by lenders. The assessment will take into account all of your buy-to-let properties/expenditure and not just the property or properties you are offering as security to the lender.

Rental stress tests are used by lenders to determine whether the lender considers the level of rental income sufficient to cover the mortgage payments allowing for potential rises in interest rates.

The overall background portfolio stress test calculation can vary between lenders and not all lenders have the same assessment. As a general rule, the overall portfolio Loan to Value (LTV) should not exceed 75 per cent, the rental income needs to be at least 145 per cent (Interest Cover Ratio - ICR) of your overall mortgage interest payments when calculated using a notional mortgage interest rate of 5.5 per cent, on an interest only basis.

Example

For each £100,000 of background portfolio mortgage debt:

Interest @ 5.5 per cent (notional) x £100,000 = £5,500pa or £458pm.

Minimum rent needs to be: £5,500 x 145 per cent (ICR) = £7,975pa or £664pm.

The notional mortgage interest is £458pm per £100,000 of portfolio mortgage debt. The rental stress test requires an aggregate rental income of £664pm per £100,000 of portfolio mortgage debt. Of course, your actual interest payable will vary within your portfolio, dependent upon your current mortgage products. Different lenders perform different assessments and not all lenders perform all assessments.

Please note lenders have different minimum criteria requirements and not all landlords and property types will qualify for this specific product. For further information contact NRLA Mortgages.

This is an advertisement only and in no way should be viewed as a personal recommendation or advice. Before a recommendation of the suitability of the product can be given, we will direct you to 3mc (UK) Limited who can provide specialist mortgage advice. As part of this they will ask questions so that they can fully understand your circumstances before giving advice.

NRLA Mortgages is a trading name of LPTE Limited which is an Introducer Appointed Representative of 3mc (UK) Limited who is Authorised and Regulated by the Financial Conduct Authority and is entered on the FS Register under reference 302992.

Please note: 3mc can advise/arrange Business Buy to Let (BBTL) and Consumer Buy to Lets (CBTL). Of the two, only Consumer Buy to Lets are regulated by the FCA.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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

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