Investment Mortgages for Investment Portfolios
Property investors will often fall into the trap of locating the best mortgage for their current needs, without taking into account their potential future needs. When it comes to building a portfolio, one of the most important things to put in place, from the outset, is appropriate, flexible financing that enables you to grow without having to change providers (unless, of course, you want to!).
Investment Portfolio Mortgages Available
Those companies that do offer services for a portfolio owner will often make borrowing further money a much easier and quicker process. For example, if you already hold a portfolio of say five properties and decide to add a sixth, the mortgage provider will already be aware of your status and your current liabilities and income, which will cut out the need for extensive discussions over your total liabilities. You will still have to put forward the details of the new property, but you will not have to prove the viability of your entire portfolio.
Those providers that offer portfolio financing will normally take into account the entire portfolio, in terms of both the values of the properties and the total rental incomes. This means that although an investor may have one property that does not conform fully to the rigid criteria in terms of the amount of income that needs to be derived from the property, it will still, potentially, be possible to add the property to the portfolio based on other properties that may be generating a larger income. This degree of flexibility allows portfolio investors to speculate on property that may not be producing the immediate returns, but is thought to be in a good area for substantial capital gains, in the future.
Pitfalls of Portfolio Investment
One thing that must be considered when looking to finance a portfolio, either with one mortgage provider or with multiple mortgage providers is that the terms and conditions are likely to change as the portfolio grows. For example, it is not uncommon for a lender to be prepared to offer 90 percent of the value of the property for a smaller value (say under £500,000) with this decreasing to 85 percent for loans of up to £750,000 and decreasing further still for loans over £1 million. Therefore, when you are looking to expand your portfolio it is vital that you consider how much cash will be required.
Remember, when opting for portfolio financing, in most cases you will be able to take the equity that has built up in other properties to count as cash for the deposit of the next property. This means that the calculation will simply be that you are only able to borrow up to 85 percent of the total portfolio’s value, allowing you to benefit from the equity that has built up without having to re-mortgage.
Financing a portfolio requires an entirely different set of skills compared with financing an individual property;
if you are planning on extending your portfolio, consider this when you buy your first property so that you can find out what the different lenders offer in relation to portfolios;
when looking to expand, consider using one lender as this will allow you to look at your entire portfolio in order to meet the criteria laid out; and
remember that the criteria change when a portfolio becomes larger, so bear this in mind when timing your expansion.