If you wish to borrow money to build a portfolio of properties, it pays to know where to look. Some lenders will limit the number of buy-to-let mortgages you can have at one time.
Different lenders tolerate different degrees of exposure. Broadly speaking, three factors determine how many buy-to-let mortgages you can have:
- the number of properties against which your lender will permit you to borrow with them only;
- the number of properties against which your lender will permit you to borrow in total (including with other lenders); and
- the maximum amount of money your lender will agree to lend you
Most lenders limit their individual exposure…
As some property investors spread their risk across several properties, some lenders avoid lending too much to a single client.
At the time of writing, around 75% of lenders limit the number of mortgages they will grant a single borrower. Limits range between three and ten. Most of these lenders will allow you to take out finance elsewhere.
Around a quarter of lenders impose no limit on the number of properties they will finance for a single borrower.
… but fewer impose limits on background portfolio
Some lenders will limit the number of loans you can have in total, even with other mortgage providers. This is known as your ‘background portfolio’.
A large background portfolio can, to some lenders, suggest higher risk. They reason that the more mortgages a client has, the more likely it is that one or more of those mortgages may fall into arrears and impact the rest of the portfolio.
But to some lenders, a larger portfolio can be a sign of a more experienced landlord. At present, over half the buy-to-let lenders on the market do not limit the total number of properties a borrower may have.
Do lenders count unencumbered properties when assessing background portfolio?
Unencumbered properties are less risky as background assets because they are not subject to a mortgage. Some lenders will discount them. But a few will still count unencumbered properties against the total number of properties an applicant may own.
Almost all buy-to-let lenders will limit your maximum borrowing
Most lenders cap the total amount of money they will lend you across all loans. (Very few lenders also cap the total debt you can have in your background portfolio.)
Lending limits vary from a low threshold of £500,000 to £15 million. Typical limits are between £1 million and £3 million. This borrowing limit is important. Depending on where in the UK you invest, the lowest limits may allow you to invest in only one or two buy-to-let properties.
Very few lenders allow unlimited borrowing. Speak to your advisor if your total borrowing is likely to exceed £15 million.
Can you borrow an unlimited amount against unlimited properties?
In theory, you can find lenders who will provide unlimited finance against an unlimited number of properties. But in practice how much you can borrow depends on other criteria.
The most you can borrow against a buy-to-let property is 85% of the purchase price. This means that you must front a 15% cash deposit. Over several properties, this can become extremely expensive. Minimum loan requirements may prevent you from spreading your deposit across many inexpensive properties.
The vast majority of lenders also limit the total number of properties they will lend against in a single development. This could be between a quarter and a third of the total dwellings in the development, though it can be as low as a single unit. The number of lenders who will finance an entire development is extremely limited.
Remember to plan for future buy-to-let purchases
Because the majority of buy-to-let contracts tie you in for two years or more, they can affect your ability to make future purchases. If you plan to build a portfolio, you will need a lender that will allow you to do so.
If you are already with a lender whose criteria will not permit you to borrow more, you may wish to remortgage. Be aware that switching your existing loan before the end of the agreed-upon term may give rise to early repayment charges (ERCs). Speak to your advisor for more information.
If you have requirements that a buy-to-let mortgage cannot meet, it might be that a commercial mortgage is more suitable. Visit our commercial mortgage homepage or contact us on the number above for more information.