Dear Delia

Dear Delia, My client Steve is a professional landlord with a portfolio of 14 buy-to-let properties with a total value of 1.75m. He has an aggregate mortgage balance of 900,000. Steve wants to remortgage and expand his portfolio and is considering buying properties at auction so he will need to have finance in place. What are his options?

Delia says: When buying at auction properties may need to be valued in advance and renovation costs will have to be budgeted for. Sally Laker of Mortgage Intelligence and Andrew Lees of Paragon Mortgages outline the procedure. Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary response
Sally Laker is managing director of Mortgage Intelligence

To buy his properties, Steve will have to have finance in place before attending auctions. Fortunately, he has enough eq-uity in his portfolio for this.

We don’t know if his portfolio is with one lender or with a number and he should be sure he won’t incur early repayment charges if he were to move any of these mortgages. Assuming there are ERCs Steve could consider remortgaging his properties to a number of lenders or a better option might be to move the whole portfolio to one lender. Doing this would limit the lenders available but could offer him an easier process to release his maximum borrowing potential.

Properties bought at auction generally require work before they can be let out and Steve must budget for these costs as well as mortgage payments until his property is suitable to let.

Lenders that specialise in portfolio lending can also offer the facility to set up a credit line. When Steve remortgages his portfolio the lender will assess his total borrowing potential and set up an agreed limit which he can use to buy additional properties using a simple and speedy application process. If Steve wants to buy properties at auction this facility would be a great help as it puts him in a strong position to meet the normal 28-day completion deadline on auction properties.

Mortgage Trust would consider Steve’s portfolio but would need each property to have a minimum value of 50,000. The maximum loan would be calculated on a rental calculation of 125% at 5%. MT would consider a pre-approved credit limit for Steve but this would need to be discussed in detail once the portfolio remortgage had gone through.

The Woolwich is another lender that could consider Steve’s application. It can lend an aggregate of 5m. Any facility over 1m would be dealt with by a dedicated buy-to-let development team which would build a relationship with Steve and work with him.

Paragon Mortgages specialises in portfolio lending, especially for professional landlords like Steve. It has no maximum limit on the aggregate amount it can lend and its forward-buying facility, which it underwrites on initial application, will give Steve a pre-approved credit line.

Paragon also offers a property refurbishment scheme which would allow Steve to buy properties that need modernisation. Paragon will lend up to 85% of the lower of the purchase price or the value at completion, rising to 85% of the improved value once work has been carried out.

Lender response
Andrew Lees is head of sales at Paragon Mortgages

Steve appears to be in a strong position to support his project of portfolio expansion, particularly by way of auction purchases where timescales are usually tight.

Subject to the rental cover on the individual mortgage payments being sufficient and the maximum LTV limits on each property being met there is the potential to remortgage and release over 580,000 in capital within the normal 85% LTV limit.

By carefully planning and structuring the timing of his new borrowings he has the opportunity to control and perhaps reduce his costs, and to release the funds in a timely manner for when they are required.

He could use these funds to provide deposits on new purchases, applying for a mortgage at that time for the balance, or he could become a cash buyer which would put him in a strong bargaining position. Whatever option he decides on, care must be taken if any of his mortgages are within early redemption penalty periods.

Paragon has a forward-buying facility which is designed to give professional landlords such as Steve a timing advantage in the property transaction process. This facility provides a pre-underwritten line of credit so once a suitable property has been found, Steve only has to complete and submit a short property application form together with a discounted valuation fee. There are no additional set-up costs to put this facility in place.

As is often the case with auction properties, some modernisation may be needed to reach full letting potential. Paragon’s limited property refurbishment facility can be used with its range of products giving a wide variety of interest rate choices. Under this facility we can lend up to 85% of the lower of the purchase price or property value at completion, rising to 85% of the improved value once the work has been completed.

The cost of the work would need to be funded by Steve in the meantime. This would provide him with an excellent opportunity to extract capital to keep the expansion process going and effectively maximise the gearing of the lending against the property. Rental assessment is based on the final achievable rent.

Paragon does not restrict the number of properties in a portfolio and can lend up to and more than 20m to an individual professional landlord, so if Steve is serious about his expansion plans we would be an ideal lending partner for him.