Existing and prospective buy to let investors are already likely to be aware of some of the recent pressures facing private sector landlords – many of these were described in a story published in the Telegraph newspaper on the 16th of November 2016.
Instead of reading doom and gloom for property investment into reports such as these, you might want instead to look at the potential for making economies of scale and actually expanding your property portfolio.
Here, then, are some of the areas where managing a portfolio of several buy to let properties may achieve economies of scale and valuable savings – compared to your owning just one property:
Repairs and maintenance
- you are likely to have better leverage and enjoy greater success in negotiating competitively priced repairs and maintenance contracts if providers know there is more than a single property involved;
Letting agency fees
- similar economies may be made if you are offering a letting agency responsibility for a whole portfolio of properties rather than just the one;
- discounted rates on property portfolio insurance are offered by the insurers with whom we deal here at UKinsurancenet;
- as we point out in our knowledge base, there is not only the opportunity to save money on landlord insurance for the whole of the portfolio, but it also saves you valuable time and effort – and, therefore, more money – if you no longer have to monitor the renewal dates for a range of different properties, but keep them all under the same umbrella insurance.
Buy to let mortgages
- if you are already have a mortgage on one property and are therefore actively demonstrating your ability to make the repayments when they fall due, you may be in a stronger position for securing and for negotiating a more favourable rate of interest on an additional mortgage to expand the portfolio of an evidently successful buy to let business;
- but you might also want to be aware of a press release dated the 29th September 2016 in which the Bank of England announced new, stricter rules on the granting of buy to let mortgages, especially those for “portfolio landlords” – those who own four or more properties
- the changes are intended to make lenders take greater effort to “stress test” mortgages granted – in other words, to look at their affordability more strenuously – and this involves landlords owning more than four properties needing to disclose the revenue and expenses of each property when applying for an additional mortgage;
- according to a report in the Financial Times newspaper on the 29th of September 2016, applicants for buy to let mortgages will need to demonstrate that the anticipated ratio of rental income to mortgage repayments on the property – the interest coverage ratio (ICR) is no less than 125%;
- some of the new rules came into effect from the 1st of January 2017 and the remainder on the 30th September of 2017.
Expanding your property portfolio
Whether or not to expand your property portfolio remains an essentially business decision. This, in turn, depends on the particular properties you choose to expand your portfolio. Care needs to be taken in the selection of suitable properties and in those areas of the country where rental property values seem set to be increasing. Your choice of suitable properties, in other words, is as critical as ever.
The decision needs to take account not only of the potential economies of scale in owning multiple buy to let properties, but also the implications with respect to any mortgage application you may need to make – in future, the business case for any additional mortgage is going to be examined so much more carefully and rigorously under the Bank of England’s new rules.