What changes when you own four or more mortgaged buy to lets?

The four property threshold

The Prudential Regulation Authority defines a portfolio landlord as a borrower with four or more mortgaged buy to let properties. The count includes the property being purchased, so a landlord with three mortgaged rentals buying a fourth is assessed as a portfolio landlord on that application. Unencumbered properties do not count towards the four, and properties held jointly generally count for each borrower. Cross the line and the underwriting changes shape: the lender must assess the sustainability of the whole portfolio, not just whether the new property washes its own face.

What lenders ask for

A portfolio application carries a heavier documentation load. The standard requests are:

• A portfolio spreadsheet. Every property with its address, value, mortgage balance, lender, rate, monthly payment and rent. Most lenders have their own template and accuracy matters, because the figures are checked against credit files and, increasingly, automated valuation models.
• A business plan. Usually short. What the portfolio is for, the strategy for the next few years, and how the new purchase fits.
• Cash flow figures. A statement showing rental income against mortgage payments and running costs, demonstrating the portfolio generates surplus cash rather than relying on the landlord's salary to stay afloat.
• Assets, liabilities, income and expenditure. A summary of the borrower's wider position, often on the lender's own form.
• Tax returns. SA302s or accounts, so the declared rental income can be reconciled with the spreadsheet.

The aggregate tests

Alongside the usual test on the new property, the background portfolio has to pass its own numbers. Two dominate. Most lenders cap aggregate loan to value across the portfolio, commonly at 65 to 75 per cent. And most apply a portfolio wide interest coverage ratio, typically requiring total rent to cover total stressed interest by 125 to 145 per cent.

A worked example. A landlord owns five mortgaged rentals worth £1,200,000 in total, with combined mortgage balances of £780,000. Aggregate LTV is £780,000 divided by £1,200,000, which is 65 per cent, inside most lenders' caps. Total rent is £6,000 a month, £72,000 a year. Stressed at 5.5 per cent, the portfolio's notional interest bill is £780,000 times 0.055, which is £42,900 a year. Portfolio ICR is £72,000 divided by £42,900, roughly 168 per cent, a comfortable pass against a 145 per cent requirement. The same portfolio with £950,000 of debt would sit at 79 per cent LTV and about 138 per cent ICR, and many lenders would decline the new purchase however strong the new property looked on its own.

The new property still has to pass its own coverage test as well. The mechanics of that calculation, stress rates and the 125 versus 145 per cent thresholds, are set out in our guide to how lenders stress test buy to let affordability, and you can run individual property figures through our buy to let affordability calculator.

How this shapes growth

Portfolio rules change how landlords fund the next purchase. Releasing equity from existing properties remains the usual route to a deposit, but every remortgage raises the aggregate LTV and lowers the portfolio ICR, so lenders are in effect testing whether the portfolio can absorb its own growth. The mechanics and trade offs are covered in our guide to releasing equity from one buy to let to buy another. Landlords near a lender's aggregate cap sometimes find the constraint is not the new property at all but a highly geared flat bought years earlier that drags the portfolio numbers down.

Which lenders suit portfolio cases

High street lenders take portfolio landlords but often cap the number of properties, either with them or in total, at around 10, and their document processes can be rigid. Specialist buy to let lenders are built for larger books, accept limited company structures and mixed portfolios, and tend to price slightly higher for the flexibility. For illustration, the gap between a high street and a specialist five year fixed rate on an otherwise identical case is often in the region of half a per cent. What usually decides lender choice is not rate but whether the portfolio fits inside a lender's property count, aggregate LTV cap and ICR basis at all.

What slows portfolio cases down

The spreadsheet causes most delays. Figures that disagree with credit files, rents that disagree with tax returns, or a missing property that surfaces during checks all send a case back to the start. Portfolio landlords who keep a live, accurate schedule of their properties, and update it before every application, remove the single biggest source of friction in the process.