Financing another rental property can become more involved once you already have buy-to-let borrowing. As well as looking at the property you want to buy, a lender may need to consider the mortgages, rental income and borrowing already within your portfolio.
That means financing the next purchase is not only about finding a deposit. You also need a mortgage that works for the new property and fits your wider borrowing position.
Before financing your next property
RENT
Check the expected rental cover
The rent on the new property will usually need to meet the lender’s rental calculation. Your wider portfolio may also be considered.
DEPOSIT
Know your available deposit
Work out how much you can put towards the purchase while keeping enough money available for fees, repairs and empty periods.
EQUITY
Review equity you could release
Equity in an existing rental property or your own home may provide another way to raise some or all of the next deposit.
PORTFOLIO
Check your existing borrowing
Mortgage balances, property values, rental income and deals ending soon can influence which lenders and mortgage options may fit.
Does the rent stack up?
Test the borrowing, rental income and potential yield on the next property.
How you can fund the purchase
Most landlords buying another rental property will use a combination of their own funds and a new buy-to-let mortgage. Where the deposit comes from can vary.
SAVINGS
Use cash for the deposit
Using savings can avoid increasing borrowing against another property. However, you should still keep enough cash available for purchase costs, repairs and periods without tenants rather than committing everything to the deposit.
EQUITY
Release equity from another property
If an existing property has enough equity, you may be able to increase the borrowing against it and use some of the money towards the next purchase.
Remortgaging an existing buy-to-let may allow you to release funds, subject to the property’s value, mortgage balance, rental cover and lender criteria.
Some landlords instead raise funds against their own home. Using equity from your home involves different affordability and risk considerations.
Either route increases borrowing, so consider the effect on the existing mortgage, the new purchase and your wider finances.
NEW MORTGAGE
Arrange the new buy-to-let mortgage
The remaining purchase price can then be financed with a buy-to-let mortgage secured against the new rental property.
The borrowing available and the mortgage options you can access will depend on factors including the deposit, expected rent, property type and lender criteria. Buy-to-let mortgage options can vary significantly between lenders, particularly once existing portfolio borrowing is taken into account.
Remember to budget for the wider cost of buying and running a BTL property, not just the deposit and mortgage payment.
What lenders assess on the new purchase
A lender will first need to be comfortable with the property you want to buy. The exact assessment varies, but several areas commonly affect the mortgage available.
Expected rental income
The lender will normally check whether the expected rent provides enough cover for the mortgage under its rental calculation.
Deposit and loan-to-value
The amount you put down determines the loan-to-value. Buy-to-let deposit and LTV requirements vary by lender and can affect the mortgage options available.
Property type and condition
Construction, condition, tenancy type and how the property will be used can all influence which lenders may consider it.
Your wider circumstances
Some lenders may consider personal income, existing commitments, credit history and landlord experience when assessing the application.
When portfolio landlord rules apply
Under PRA buy-to-let underwriting standards, borrowers with four or more distinct mortgaged buy-to-let properties across all lenders in aggregate should be treated as portfolio landlords.
Portfolio landlord applications can involve more detailed underwriting because the lender may assess the new borrowing alongside the debt, rental income and cash flow across several properties. Individual lenders can also set their own portfolio policies and limits.
How lenders assess your portfolio
The lender will normally assess the new property first and then consider how the additional mortgage fits with your existing borrowing.
Existing property values
The lender may review property values, outstanding mortgage balances and loan-to-values across the portfolio.
Rental cover across properties
The new property can meet its own rental calculation while weaker rental cover elsewhere still affects the overall application.
Your existing borrowing
The amount already borrowed across the portfolio can influence how comfortable a lender is with additional debt.
Your landlord experience
Your experience of owning and managing rental property may form part of the lender’s assessment.
Upcoming mortgage changes
Existing deals ending soon can change future borrowing costs and cash flow even when the new property looks affordable today.
Current mortgage rates can provide a useful benchmark when comparing new borrowing with mortgages already held across the portfolio.
What lenders may ask to see
Information
Why it may matter
Portfolio schedule
Shows the properties, current values, mortgage balances and existing lenders.
Rental and tenancy details
Helps the lender understand rental income and occupancy across the portfolio.
Ownership structure
Shows whether properties are held personally, through companies or through a mixture of structures.
Business plan or cash flow
Some lenders may want a clearer picture of how the existing portfolio operates and how the new borrowing fits within it.
Not every lender asks for the same information. Preparing your portfolio details before applying can help avoid unnecessary delays.
How ownership affects lender choice
Your next property could be bought personally or through a limited company. That can affect which lenders and products are available, the documents required and how the application is assessed.
Limited company lenders may also review the company, its directors and shareholders, and any personal guarantees required.
The choice between personal and limited company buy-to-let also has tax and accounting implications. Muttuo can compare the mortgage options, while a qualified accountant or tax adviser should advise on the tax structure.
If you are still deciding whether to buy again, that decision forms part of your wider approach to growing your property portfolio.
How Muttuo Mortgages can help
Financing another rental property can involve more than arranging the mortgage on the new purchase. We can look at how the deposit, rental income and existing borrowing fit together before comparing suitable options.
Review the expected rent, deposit and loan-to-value on the new property
Consider whether existing mortgages could affect lender choice
Compare buy-to-let options from more than 100 lenders across the market
Talk through your options
Explore how you could finance your next rental property and understand how lenders may assess the new mortgage alongside your existing borrowing.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some buy-to-let mortgages.
Your next buy-to-let questions answered
Can I get another buy-to-let mortgage?
Yes, subject to lender criteria. The lender will assess the new property’s rent, deposit, loan-to-value and other relevant circumstances. If you already own several mortgaged rental properties, it may also consider your wider portfolio.
How can I fund the deposit?
You could use existing savings or, where suitable, release equity from another property. The right approach depends on the equity available, existing mortgages, affordability and how much additional borrowing you are comfortable taking on.
Can I remortgage one rental to buy another?
It may be possible to release equity by remortgaging an existing buy-to-let. The additional borrowing would need to meet the lender’s criteria and rental calculation, and you should consider how the higher mortgage affects the existing property.
How many properties make me a portfolio landlord?
Under PRA buy-to-let underwriting standards, borrowers with four or more distinct mortgaged buy-to-let properties across all lenders in aggregate should be treated as portfolio landlords. Individual lenders may also apply their own portfolio policies.
Will lenders assess all my properties?
If you are treated as a portfolio landlord, the lender may review your wider portfolio rather than assessing the new mortgage entirely in isolation. This can include existing property values, mortgage balances, rental income and cash flow.
Do portfolio landlords need larger deposits?
Not automatically. Deposit requirements depend on the lender, property, rental calculation and wider circumstances. A larger deposit reduces the loan-to-value and may increase the mortgage options available, but it is also important to retain enough money for purchase costs and running the property.
