Portfolio landlords need to know what’s going on in the market, and how specialist lenders can help

Portfolio landlords are generally thought of as those who own several properties that are rented out to tenants. But, there is actually an official definition in place.

The Prudential Regulation Authority (PRA) defines a portfolio landlord as: “borrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate[1].” While this is the recognised definition, some investors may still consider themselves portfolio landlords, even though they fall outside the official parameters.

For example, an investor may think of themselves as a portfolio landlord if they rent out multiple homes they own outright (which aren’t mortgaged.)  Regardless of how we define these landlords, we’re likely to see more of them, and/or expanded portfolios over the coming months.

Nearly four in 10 (38%) landlords would like to expand their portfolios over the coming 12 months or so, according to a recent survey[2]. What’s more, our own research shows property investors believe several rental options holds plenty of potential for 2024. This includes standard Buy-To-Let (BTL) assets, student accommodation, holiday lets, and more.

Still, despite appetite being there among portfolio landlords, there are few notable shifts in the market on the horizon worth keeping an eye on. Also, to overcome any potential challenges, BTL investors will want to make sure they know what financial solutions are available to them.

What types of finance are available for landlords?

While standard BTL mortgages are available from many portfolio landlord lenders, portfolio landlords may find portfolio mortgages to be more useful[3]. These are BTL mortgages for portfolio landlords that are specifically designed to accommodate multiple properties. They allow landlords to have all their BTL properties, and first charges on these properties, under one mortgage with a single lender.

Outside of the mainstream lending market, BTL investors may be able to benefit from more tailored products. At MFS, for instance, we have specialist BTL mortgages at the ready that provide borrowers with bridging-like speed and flexibility. Our mortgages can accommodate several different kinds of landlord, with up to £10m being available for portfolio landlords, and multiple properties can be on one loan.

Our range of bridging loans can also help with numerous BTL related investments. We have various acquisition loans that can allow investors to secure properties quickly, and efficiently. Meanwhile, our refurbishment finance can allow landlords to spruce up their homes, raise their values, and attract higher paying tenants.

Of course, the right financial option for an investor(s) will depend on their circumstances. To help narrow their choices, they should seek out guidance from professional, qualified advisors.

Challenges investors may face from portfolio landlord lenders

Seeking guidance may be especially important in the current market. While confidence and better financial conditions are returning, there are still several challenges to overcome.

Gross mortgage lending generally is expected to drop in 2024[4] as lenders push through a tentative recovery. And where investors do find appropriate BTL products, they’re likely to be particularly expensive[5].

Attaining BTL mortgages is likely to be especially difficult at the moment for portfolio landlords. There’s been a surge in BTL landlords falling into mortgage arrears, according to UK Finance[6]. Having arrears and missed payments on one’s record will make it difficult to progress on the high street.

That is, if deals can be found at all. The average mortgage shelf-life has plummeted to 15 days, according to Moneyfacts[7].

What do portfolio landlords need to keep an eye on?

To give themselves the best chance of finding appropriate, useful funding solutions, portfolio landlords should keep an eye on what’s going on with certain assessment tools and metrics.

Stress tests, for example, went through major reconfigurations across the board in 2023 as the economic outlook remained uncertain[8]. They allow lenders to assess a landlord’s rental income against mortgage payments. They can compare how much a landlord wants to borrow, versus the rental income and interest they will pay on the loan.

Higher stress tests mean lenders require more income from their borrowers to secure a loan. Borrowers may now need to turn to specialist providers for reprieve and optionality.

Similarly, portfolio landlords should keep on top of affordability requirements. All lenders will assess a borrower’s ability to cover their mortgage repayments, but they tend to be stricter with BTL borrowers[9]. This is because lenders view BTL mortgages as riskier than their residential counterparts.

On this, several industry executives and experts have called for BTL affordability to “adapt and change”[10].

Also, landlords are reportedly struggling against tough interest coverage ratio (ICR) requirements[11]. But, as inflation drops[12], ICRs may ease, and become easier to deal with.

MFS has a range of tools at its disposal to help with BTL mortgage affordability. All our deals are underwritten from day one, and our teams can utilise various repayment strategies, top slicing, and LTV boosting tools to get deals over the line.

We will do everything within our power to support our borrowers. Reach out to us today to find out how we can help your clients.