The most successful landlords don’t just sit back and watch the rental income come in but make their property equity also work hard for them by refinancing and further investing.
Refinancing opens the ability to upgrade a property that will command a higher rent or gives access to make further acquisitions if there is an unmissable purchase opportunity.
The Following Topics Are Covered:
Three Popular Reasons To Refinance
Based on a survey from Swoop Funding we discuss the three main reasons landlords refinance.
Raise Finance For Building Works
Rental income changes every year and it pays well to keep ahead of localised demand.
You may be wanting to add facilities such as a new kitchen or bathroom or add another bedroom to turn a single occupancy into a five-plus House of Multiple Occupancy. This can be a much-needed buffer against rental voids or substantial repair bills.
To get advice on what adds the most value to the property, contact your local estate agent.
Case Study: Buy to Let Refinance without the stress criteria. One of our full-time landlord clients wanted to free up equity and refinance. The challenge here was the client has additional income which many lenders wish to see.
We sourced a Refinance for 4 Flats at a competitive 5-year fixed.
Refinance To Get A Better Rate
At the time of writing, interest rates are at 0.75% and are predicted to go up to 1-1.5% by the middle of next year.
Many landlords will consider breaking a mortgage this year for a more advantageous long-term fixed product. Before doing this, it is crucial to know what the upfront costs will be before going down this route.
There are substantial financial savings that could be made by either spreading finance across multiple properties to spread the risk or reallocating your equity so that some properties are mortgage-free (which some lenders like to see in a portfolio).
Refinance To Purchase Further Properties
Successful landlords know that profitability comes from buying at a lower price within the market and at times opportunities come and go depending on the correct timing.
By refinancing, you will have access to your equity and seize opportunities as they arise.
Accelerated Finance has access to lenders who can offer an overdraft property investment facility for portfolio landlords which works as a rolling credit facility to fund further BTL purchases if for instance there is an auction property that needs quick funding within 30 days, and you choose to not go down the bridging route.
How Does The Eligibility Criteria Work?
Lenders base their affordability criteria for buy to let mortgages on the income that your property can generate and large portfolio mortgages are no different.
A lender will calculate how much you can borrow by looking at your overall rental income over and above the total mortgage repayments. This is what’s called the rental yield.
In most cases, the overall rental yield will usually need to be between 125%-145% of your monthly mortgage repayments.
Lenders will look at all aspects of your buy to let portfolio and are likely to consider:
Your experience as a landlord
Assets and Liabilities, including tax liability
All other sources of income
Details of your buy to let mortgage
Historical and forecasted portfolio cash flow
Borrowing Issues for Portfolio Landlords
The Size Of Your Portfolio
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 who have more than 10 rental properties or in some instances £2.5 million in exposure per lender.
The concern is not so much the size of the portfolio, but the risk of the number of properties lenders are willing to lend against.
The Profitability Of Your Total Portfolio
The projected profitability of every property in a landlord’s portfolio, not just the projected rental returns is now increasingly more important and required by lenders as per new regulations issued by the PRA (Prudential Regulation Authority).
The broker you use may find a new lender who is willing to take a broader view and possibly apply other earned income into the affordability calculation.
Age and Income
Lenders will be considering your age, generally up to 75, but there are lenders in the market who will provide competitive terms if you are older. It is normal for landlords to enter the buy to let market later in life and that experience and substantial portfolios are built up over many years.
Many lenders like to see additional, earned income. Even though this can be an issue for professional landlords. A good broker will be able to source a solution for you.
Are The Tax Rules Different For Portfolio Landlords?
In addition to the extra 3% Stamp Duty Land Tax that homeowners need to pay if they are buying an investment property or second home, recent changes to tax relief make running a buy-to-let investment more expensive, and these additional costs are an important part of assessing any landlord’s buy-to-let portfolio.
The tax relief on buy-to-let mortgage interest was completely removed on April 6th 2020, so you can’t deduct any of your mortgage expenses from your rental income. This increases the tax bill for investors with a portfolio of mortgage loans. However, this change only affects private landlords.
If you’re looking at growing your number of buy-to-let portfolio mortgages, it’s a good idea to seek the advice of a property tax specialist.
The articles are intended to provide a general understanding of the topic. The contents should not be treated as advice.
Please note Accelerated Finance only considers applications for commercial or investment properties.