Looking to boost your property portfolio? There are several factors you’ll need to consider, no matter whether you own just one property or ten. Below are the five factors you must consider before your next property purchase.
Making the most of higher-yielding opportunities and a reduced risk of void periods are just some benefits of diversifying your property portfolio. However, if you plan to diversify, making well-informed property investment decisions is essential. Here are the five main factors to consider to help you achieve your property finance goals.
Your first step is deciding whether to invest in your own name or via a Limited Company structure. Deciding this early on with the help of your broker and a professional tax advisor is essential, as it can become expensive and complicated to incorporate your portfolio at a later date.
There are benefits to both investing personally and via a Limited Company, but ultimately, your individual circumstances will determine which method is right for you.
Typically, you can access more lenders and competitive pricing by investing in your own name. However, the potential tax benefits of a Limited Company structure make this method increasingly popular amongst landlords. Limited Companies are liable for corporation tax, not income tax, which allows higher-rate taxpayers to potentially reduce their overall borrowing. Furthermore, lenders stress-test mortgage applications more generously for Limited Companies due to this tax saving, so you could borrow more through this structure than borrowing personally.
Speak to a professional tax advisor before making any property investment decisions.
Below are a few ways to finance your next buy to let property investment. However, the right option for you will depend on your circumstances and property portfolio goals. Our team of experts can help you with enquiries across all property sectors, from commercial investment to development finance.
Buy to let mortgages
A standard buy to let mortgage is the most obvious route to go down when planning to grow your portfolio. As you’ll be aware, your experience, income, deposit, and current portfolio are just a few factors that impact which lenders you can access and the rates available, so working with one of our brokers is the best way to find the right deal for you.
You’ll typically need to put down a minimum deposit of 25%, which is where the competitive rate pricing tends to start. To see what rates you can access, click here.
Capital Raising for further property investment
Raising equity from one of your existing properties (or your own home) when you remortgage is a popular way to fund buy to let investments. It’s worth remembering that you may be hit with Early Repayment Charges if you’re not at the end of your current fixed rate term – one of our brokers will be able to calculate how much you could pay.
In addition, you should consider that you may secure a higher rate when you remortgage, which could increase your portfolio costs. Again, working with one of our brokers is the best way to ensure you secure the most cost-effective deal.
Bridging finance
Although typically used for auction purchases, bridging finance could be the perfect way to fund portfolio diversification. Many landlords use bridging finance to prevent a chain break in their purchase process and to refurbish properties before letting them to tenants or selling them for a profit.
Bridging finance can be more expensive than standard buy to let rates, but as a short-term finance solution, this may still be a worthwhile finance option to explore. Search the bridging rates you could access with our FREE calculator here.
Before making any property investment decisions, discussing your plans with a professional tax advisor is essential. As with all property investments, consider all fees involved, including the tax implications that come with a larger property portfolio.
Stamp Duty Land Tax (SDLT)
In England and Northern Ireland, all residential property transactions of second homes or through Limited Companies are liable for the 3% Additional Property Surcharge. Calculate how much Stamp Duty you need to pay here. Scotland and Wales have similar systems but refer to them as Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively.
Capital Gains Tax (CGT)
Borrowing personally makes you liable for Capital Gains Tax (CGT). CGT rates are split into two bands based on your income tax banding: basic rate taxpayers pay 15%, whilst higher rate taxpayers pay 28%.
Limited Company tax benefits
As previously mentioned, investing via a Limited Company can offer a number of tax benefits for higher-rate taxpayers that can bring your overall mortgage costs down. Again, speak to a professional tax advisor before making any property investment decisions.
Taking the time to carefully consider where you’ll invest and the types of properties you’ll focus on will significantly impact how much you can earn from your portfolio.
Location
Property agencies, such as Rightmove and Zoopla, publish quarterly reports that can be particularly helpful when you’re looking for the right location to invest in. These reports will highlight the areas performing best for rental growth and where landlords are earning the most competitive rental yields.
The property type you’re planning on investing in will also impact which area is best for you to focus on. For example, city centres, student areas, or properties near public transport may attract higher yields.
Property types
When planning their property portfolio diversification, many landlords focus on HMOs and Multi-Unit Freehold blocks (MUFBs), as these, as well as semi-commercial properties and holiday lets, typically generate higher rental yields. HMOs and MUFBs are also consistently in high demand with tenants, meaning you’re unlikely to struggle with rental void periods.
Again, consider the location and the type of tenants you’re looking to attract to ensure there is enough demand for the property.
A property portfolio review acts as a ‘health check’ of sorts for your property investments; it allows your broker to review your current mortgage deals and identify the types of diversification opportunities that could benefit you. Most importantly, it gives your broker the chance to see whether you could be saving on your property finances.
From securing new fixed-rate products in time to consolidating your debts with a portfolio loan, your broker will be able to run through all options available to you. Better yet, you’ll feel confident your property investments are performing as best as possible, and you could save money sooner rather than later.
Claim your FREE property portfolio review.
In the meantime, if you would like to discuss your portfolio diversification plans, then do get in touch with our team of experts by calling 0345 345 6788 or submit an enquiry here.
Mortgage Finance Brokers (MFB) is a mortgage broker specialising in buy to let finance, homebuyer and commercial mortgages, and short-term finance. Registered office 17 Kings Hill Avenue, Kings Hill, West Malling, ME19 4UA. Company registered in England and Wales No. 2502713. Mortgage Finance Brokers Limited is authorised and regulated by the Financial Conduct Authority (313537) to transact regulated mortgages.
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