Commercial Portfolio Mortgages
If you’re a commercial landlord with more than one property, a portfolio mortgage could make your finances simpler. Find out if this option is right for you.
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Commercial property investors usually start by buying a single property but, once this becomes profitable, many decide to grow their business by investing in others. This can result in having multiple business mortgages.
At a certain point, it can become easier and more cost-effective to consider a commercial portfolio mortgage.
In this article, we’ll explain how this type of mortgage works and help you decide whether it’s right for you.
The following topics are covered below...
What is a commercial portfolio mortgage?
This type of mortgage is designed for commercial landlords who buy and rent out several properties at the same time. It is a single loan that covers multiple properties. These can be any type of property, such as homes, retail units, office space, factories, warehouses, etc.
With a commercial portfolio mortgage, you only need to deal with one lender and only have one monthly payment, whereas, if you were to individually mortgage each property, you would need to manage many monthly repayments, potentially with different lenders.
Commercial portfolio mortgages can be interest-only or capital repayment. They are available to landlords operating as sole traders, partnerships, limited companies, or limited liability partnerships. At the time of writing, typical rates available are between 4.2% and 5.2%, though these can be quite flexible, as they are decided on a case-by-case basis.
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Advantages and disadvantages
There are several reasons why landlords choose to manage multiple commercial properties as a portfolio with a single mortgage.
Simplicity. Having one monthly payment is easier to manage than having several.
Cost efficiency. Though there are fees involved with this type of mortgage, including valuation fees, legal fees, and arrangement fees, you’ll usually only pay these once (instead of for each individual mortgage).
Growth potential. Organising your properties as a portfolio makes it easier to borrow against them to buy new properties.
Tax-efficiency. Having a single account for multiple properties allows you to keep funds within the portfolio and use them to cover costs, which helps you to minimise your tax bill.
However, one major consideration is that the single monthly payment you’ll need to make will likely be a large one. With individual mortgages, you could spread the cost over various payment dates, which can make cash flow management easier, in some cases.
This isn’t necessarily a disadvantage but could be an influential factor in your decision.
Another thing to bear in mind is that commercial portfolio mortgages can be difficult to come by, as not all lenders are equipped to offer them.
With this in mind, seeking professional advice before you apply for one is highly recommended.
Commercial portfolio lenders
Commercial portfolio mortgages are a niche, specialist product offered by a limited range of lenders.
These include…
- Yorkshire Building Society
- Virgin Money
- Aldermore
Often, these niche lenders do not accept direct applications. To reach them, you’ll need to work with a commercial mortgage broker.
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How a commercial broker can help
Though working with a broker is typically a requirement to reach many of the lenders who offer these mortgages, doing so also offers the following benefits:
- Independent advice. A broker can help you decide if a portfolio mortgage is right for you and which lender would best meet your needs.
- Industry experience. Commercial portfolio mortgages are a loan with a complex structure, so it’s helpful to have an expert in this type of finance to guide you through it.
- Good relationships with lenders. Brokers can often leverage their working relationship with a specific lender to secure you a more favourable mortgage rate.
- Ease and efficiency. With a broker to take care of all the paperwork and negotiation involved in a mortgage application, you’ll have very little to worry about.
Eligibility and lender requirements
Your broker will discuss with you the exact eligibility requirements of the different lenders.
As a guide, here are some of the factors they will consider when you make your application.
Number of properties
You’ll need to own a minimum of three or four properties to be considered for a commercial portfolio mortgage.
Some lenders also have a maximum number of properties they’ll consider, e.g. 20.
Portfolio value
Each lender will have its own minimum and maximum portfolio value (the combined total value of all the properties you let).
These start at a minimum of £500,000.
Deposit
You’ll usually be able to borrow up to 70-80% of the portfolio value, meaning you’ll need to have a deposit of 20-30% of the value.
Rental income
You’ll need to demonstrate the total rental income you receive across your portfolio is more than enough to cover the monthly payments.
Lenders may want to see that it’s at least 140% of the monthly payment amount.
Business history
Lenders will want to see at least three months’ worth of business bank accounts (or more) to show that your business is profitable.
They may also ask to see a forecast of profitability in future months.
Businesses that have been operating for a long time may find it easier to secure financing than new businesses.
Credit history
While a good credit history could be to your advantage, bad credit is a less significant factor with commercial mortgages than residential.
It is more important to show the viability of your business proposition than rely on your personal record.
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Get matched with a commercial portfolio mortgage specialist
Not all brokers have the relevant experience and relationships to help you find the right commercial portfolio mortgage.
You’ll need to approach someone with specific knowledge of this niche area.
If you’d like to be put in touch with a broker who specialises in commercial portfolio mortgages for a no-obligation chat, you can use our free broker-matching service.
It’s designed to match you with the person who best suits your needs from the numerous specialists we work with.
To give it a try, call 0808 189 0463 or make an enquiry online.
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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different types of commercial mortgages. Ask us a question and we'll get the best expert to help.
Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
