Portfolio mortgages for portfolio landlords

Banks and building societies following the Prudential Regulation Authority's buy to let standards assume an interest rate of at least 5.5% over the first five years when they test the rent. Where the loan is fixed or capped for five years or more, they can use the fixed rate itself, the pay rate (Bank of England: SS13/16). Other lenders set their own tests. On the cases we arrange, lenders commonly stress two-year fixes at around 5.5% and five-year fixes at around 4.5%, and then apply their own rental cover ratios, commonly 125% for limited companies and basic-rate taxpayers and 145% for higher-rate personal borrowers. Stress rates and ratios are lender criteria and change.

Yes, some lenders will lend to a first-time landlord buying or refinancing several properties together, although the choice of lenders is narrower than for an experienced landlord. Those lenders assess the rent, the loan to value and affordability across all the properties rather than requiring experience as a landlord. A borrower who will have four or more mortgaged buy to let properties can be a portfolio landlord under the Prudential Regulation Authority's underwriting standards, depending on whether the lender counts the properties being bought, and banks and building societies may then ask for a property schedule, a business plan and the cash flows of all the properties (Bank of England: SS13/16).

It depends on tax, so ask an accountant or tax adviser. A company pays Corporation Tax on its profits and deducts its finance costs, while an individual residential landlord gets only a basic rate tax reduction for them (HMRC: PIM2054). Moving properties into a company is a sale. Stamp Duty Land Tax in England and Northern Ireland is charged on at least market value where the company is connected with the seller (Finance Act 2003, section 53); Scotland and Wales have their own land taxes. For capital gains tax the transfer is treated as made at market value, and incorporation relief can postpone the gain where a business is transferred in exchange for shares. In our experience lenders commonly test companies at 125% rental cover.

Lenders treat portfolio landlords differently because the Prudential Regulation Authority's supervisory statement SS13/16 expects banks and building societies to use a specialist underwriting approach for borrowers with four or more mortgaged buy to let properties. The statement treats portfolio lending as more complex because of the total debt, the cash flows and costs of many tenancies, and the risk of properties concentrated in one type or area. Lenders may ask for every property and mortgage, the landlord's assets and liabilities including tax, a business plan and the cash flows of all the properties, so that a weak part of the portfolio does not put the new loan at risk (Bank of England: SS13/16).

A borrower becomes a portfolio landlord with four or more distinct mortgaged buy to let properties, counted in aggregate whether they are held alone or with others, under the Prudential Regulation Authority's underwriting standards (Bank of England: SS13/16). Banks and building societies are then expected to assess the landlord's whole portfolio, including every property and mortgage, assets and liabilities, a business plan and cash flows, as well as the new loan. Lenders differ on whether the property being bought or refinanced counts towards the four and on how they count properties held in a limited company, so the landlord should disclose the full schedule.