How to get the best mortgage deal when you own multiple properties
Investment property is a great asset to build wealth and passive income. Sure, property prices fluctuate through the property and economic trend cycle, but in the UK they have doubled every 8 to 10 years on average. As a long-term investment, buying property today has the potential to produce lifestyle income in retirement. Once on the property investment treadmill, many investors build valuable and life-changing property portfolios.
To maintain and grow a property portfolio, investors in the buy-to-let market finance their investment strategy with buy-to-let mortgages. In September 2017, new mortgage rules were introduced by the Prudential Regulation Authority. These new rules have been designed to make the market fairer. What they really do is make it more difficult for owners of multiple buy-to-let properties to finance their portfolios.
In this article, you’ll learn what the new buy-to-let mortgage rules mean for you and your property portfolio.
What are the new mortgage rules for portfolio investors?
While there are several changes to the buy-to-let mortgage rules, the main concern is how borrowing is assessed.
It used to be that each property was examined as an individual case. Now, the income of your entire portfolio is assessed. The PRA considers that this should ensure that adding a new property to your portfolio will not adversely affect the affordability of the whole portfolio.
This new rule means that lenders will have much more work to do. If you own six properties in your portfolio and want to add a seventh, the lender will have to assess seven properties for their viability as a portfolio. The lender will need to carry out an interest coverage ratio (ICR) check.
In addition, the lender will probably need to assess any other income you may have. They will do this to ensure that you have enough income to support your portfolio and not default on the mortgage.
What does this mean for the portfolio landlord?
The rules apply to portfolios of four or more properties. So, if you currently own three properties and want to add a fourth, they will apply to you.
In practical terms, you will probably find it more difficult to find a lender willing to offer a mortgage to a portfolio property investor. You’ll find that:
- The extra work and extra cost of doing so makes it more expensive for the lender
- The new rules also increase the time it takes to make a lending decision
- Interest rates may not be as low for portfolio investors
How should you invest in these new rules?
Interest rates are still low, and rental yields are attractive in the UK. As we reported in February 2018, UK property investors are receiving record rental income. And recent property news tells us that house prices are rising faster than they have for five months.
These new rules don’t alter the attractiveness of UK property as an investment asset. By building a property portfolio, you should still benefit from a great lifestyle investment. Even though the PRA has moved the mortgage goalposts, as an investor your financing aim remains unchanged: to get the best mortgage at the cheapest rate. Yes, it has become a little more difficult to do this, but a good mortgage broker who is experienced in the buy-to-let mortgage market will always find the best deal for you.
It’s estimated that as many as one in 25 adults in the UK own more than one property. If you are one of these, you should arrange your financing sooner rather than later. For a consultation to discuss your property investment strategy options, get in touch with Gladfish today on +44 207 923 6100
Live with passion
Brett Alegre-Wood
