You’ve been told about the benefits of investing in rental properties, but you haven’t yet taken the leap.
Maybe you don’t have enough saved up to buy your first property or maybe you are just starting out and want to build a solid foundation before taking on any more debt. Whatever the reason, it’s important to do your research before becoming a landlord.
What you need to know about becoming a Portfolio Landlord
Lenders have now introduced modifications to the way buy-to-let mortgage requests are evaluated for portfolio landlords.
What does the term “Portfolio Landlord” mean?
According to the Prudential Regulation Authority, a portfolio landlord is a “borrower with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate.”
The PRA’s most significant impact has been to require all lenders to conduct special affordability checks on any client who falls into the Portfolio Landlord category. As a result, many lenders have stopped providing financing to landlords with four or more investment properties.
Lenders are now having to verify that the landlord isn’t excessively exposed, thus they will seek to stress test the landlord’s buy-to-let portfolio. As opposed to before, when the lender wouldn’t care about any properties in the background as long as they were self-financing themselves, the lender will now examine the whole property portfolio and make sure that the applicant can afford any increase in interest rates.
What this change means for you and your portfolio?
If you’re a portfolio landlord with four or more investment properties, it’s important to be aware of the new PRA rules and how they will affect your ability to get financing for future purchases.
You may find it more difficult to get financing from traditional lenders, so it’s important to explore all of your options. You may need to get creative with your financing to purchase additional properties.
For example, you could consider using a portfolio loan, which is a type of loan that allows you to borrow against the value of your entire portfolio of investment properties. This can be a good option if you have a large portfolio and need to borrow a significant amount of money.
You could also consider partnering with another investor to purchase a property. This can be a good way to get around the PRA rules, as you would only be responsible for financing your portion of the purchase price.
Whatever route you decide to take, it’s important to do your research and make sure that you are able to meet the new PRA requirements. Otherwise, you could find yourself without the financing you need to purchase additional investment properties.
Portfolio landlords have always been a very important part of the buy-to-let market, and they will continue to be so despite the new PRA rules.
What are some benefits of being a Portfolio Landlord?
There are many benefits of being a portfolio landlord, from earning extra income to enjoying tax breaks.
As a portfolio landlord, you will have the opportunity to earn rental income from multiple properties. This can provide a significant boost to your overall income, which can be helpful if you are looking to reach financial goals such as retirement.
Portfolio Landlords – What information do I need?
The information / documents which most lenders are now looking for are:
- An up to date property portfolio spreadsheet
- A Business Plan
- Cash flow forecasts
- Last 3 months bank statements
- Submitted tax returns
- Latest tax calculations or SA302’s
- Income and Expenditure statements for your portfolio
How can IMS help Portfolio Landlords?
We can assist you in preparing for the above at IMS, and we have specialist lenders and portfolios for Portfolio Landlords available to us.
This might be a stressful time for landlords wanting to review or start their portfolio, but we can take the burden off of you and make the procedure as simple as possible.
To get started and for more information, please get in touch with a member of our team.