Case Studies & Articles
Location: London, UK
22nd November 2018Refinance for equity release across a client’s £90million property portfolio
Location: London, UK
Whether you are looking to add a new property to your existing portfolio or release equity from the real estate you own, it will often make sense to do this against your portfolio as a whole. Financing or releasing equity from a single property is effective, but realistically, only feasible if you only own one or two properties before it becomes unmanageable and overly complex. Using your whole portfolio will generally be more advantageous to you, as well as being easier to manage over time as you systematically release equity or make new purchases. It will also mean you are less limited in terms of how much you can borrow or the amount of capital you can release against properties you own.
Lending against several properties used to be easier and there used to be more flexibility from lenders in terms of how affordability was calculated and what landlords could borrow. However, wishing to reduce what it saw as a potential risk, the UK government introduced a number of changes to how the profits from a property business are calculated and taxed in 2016. The result is that there is less flexibility for landlords than there once was when it comes to property portfolio finance.REQUEST A CALLBACK
Since the introduction of the new regulations, landlords with four or more rental properties undergo more rigorous stress testing than in the past. The principal changes to the regulations centre on how you will afford loan repayments if one of the properties in your portfolio isn’t rented for any period of time.
In the past, lenders would assess the income generated by your complete portfolio, operating on the assumption that any income generated through your portfolio would be used to cover loan repayments on a property that lay empty. These days, lenders will focus on the affordability of the property finance. Lenders will look for rent cover of at least 150% - in other words, what you generate in rent must be, at minimum, 150% more than what you are repaying your lender. The margin is designed to ensure you have some leeway (and the ability to build up cash reserves) to lessen the financial impact of a property lying empty for a short period of time.
It’s also usual for lenders to request landlords have a non-rental generated income of at least £25,000 a year to be able to finance a property portfolio. In some cases, lenders
Private banks and niche lenders are slightly different in that they will consider worldwide assets and various income streams when traditional banks can often struggle to do so. In some cases, Enness will even be able to arrange mortgages if you have zero regular income but significant assets, wealth and rental cover.
As a result of the changes to available tax relief, landlords have seen the relief for finance costs on residential properties reduced over the past few years before it was fully phased out in April of 2020.
If you own a property portfolio, you will likely experience increased challenges because of recent government changes to property taxes.
In 2016, investors saw the removal of the 10% wear and tear allowance for residential properties, as well as an extra 3% stamp duty land tax applicable to landlords who already own property for subsequent buy-to-let property purchases.
While the new tax credit rules haven’t changed much for basic rate taxpayers, anyone in the higher tax bracket will find themselves more impacted. Mortgage interest can’t be offset as was the case in the past, and you will usually find that you are paying significantly more tax on any income derived from your rentals. The changes affect landlords who own property in their own name, rather than landlords who own property through a corporate structure. As a result, many landlords are considering setting up corporate structures to own property, rather than opting for private ownership
It’s important to understand your property portfolio financing options. Both owning property in your own name or owning property through a company have benefits and potential pitfalls. What will be best for you will likely depend on your experience, the size of your portfolio and your personal preferences. Understanding what choices you have and making a decision based on your own circumstances is essential.
If you have multiple properties, you will most likely hold your portfolio in a partnership. Doing so will give you the freedom to invest in both residential and commercial property and flexibility in terms of access to income and capital.
If you have a couple of properties, you may own these in your own name. Doing so is often practical until you have more properties. No matter how you own your portfolio, Enness will be able to secure the most competitive rates and terms for you.
Regardless of changes impacting professional landlords, Enness has the contacts to be able to secure property portfolio finance for even the most challenging of circumstances. Armed with more than a decade of experience navigating the property portfolio finance market, Enness has the connections and ability to secure the best finance for you. Your broker will also be able to introduce you to specialists and advisors who can support you in structuring your portfolio in light of recent changes. To discuss your options or your portfolio finance requirements, get in touch, one of Enness’ expert brokers will be delighted to help.Schedule A Callback
The UK is home to one of the most liquid, competitive, and complicated mortgage markets in the world.
There are hundreds of mortgage providers who lend in the UK, from major international banks to niche building societies and alternative lenders. Each lender has their own specialisation and position in the market where they excel. They also have lending criteria, interest rates, processes and oddities which are specific to them.
The UK has a considerable number of lending channels. There are regulated mortgages, unregulated mortgages, buy-to-let finance, bridging finance, commercial mortgages and more. It’s easy to see why the lending market is so complicated. The UK’s finance options are plentiful.
There are huge pools of liquidity (some of it incredibly cheap) and you can enjoy flexible lending terms. If you are a foreign national, expat, a high-net-worth individual, are self-employed, have significant assets but relatively low taxable income or anything in between, the UK mortgage market will have an option for you.