, Property
You have four flats and an offer accepted on a fifth. The deposit is sitting in a savings account. Your broker has had the figures for a fortnight, and when he finally rings it is not about the fifth flat at all. The lender wants a schedule of all four you already own, an assets and liabilities statement, a cash flow forecast, and an explanation of the two-bedroom in Rochdale that has been let at £575 a month since 2021.
The fifth flat stacks up perfectly well. It is the second one that has stopped you.
Four properties makes you a different kind of borrower
The Prudential Regulation Authority set out its underwriting expectations for buy-to-let lending in supervisory statement SS13/16. The affordability elements applied from 1 January 2017 and the portfolio elements from 30 September 2017. They are expectations on lenders rather than rules on you, which is why every lender applies them slightly differently, and why brokers earn their fee.
The threshold is four. A portfolio landlord is anyone with four or more distinct mortgaged buy-to-let properties, in aggregate, held individually or jointly or through a company. Four unencumbered houses do not count. Four mortgaged ones do, and the fourth is where the paperwork changes shape.
Below four, a lender looks at the property in front of it. At four and above, it is expected to take a specialist approach: to understand your experience, your existing portfolio, your business plan, your cash flow, and the risk that one weak asset drags on the rest. Some lenders simply stopped lending to portfolio landlords rather than build the underwriting for it. Others built it and charge for it.
The rent has to clear a rate nobody is charging you
The test is the interest cover ratio. Take the monthly rent, divide it by the monthly interest at a stressed rate, and express it as a percentage. The stressed rate is not your rate. It is a notional one the lender applies so that the loan still works if rates move.
The PRA expects lenders to assume a minimum borrower interest rate of 5.5% over the opening five years of the loan, unless the product is fixed for five years or more, in which case a lower stress is generally permitted. That single carve-out is the most useful thing in the whole document, and it is why five-year fixes dominate the portfolio market.
The cover requirement then sits on top. 125% is the common floor. 145% is typical for a higher-rate taxpayer. Company borrowers are often tested at 125%, which is one of several reasons portfolios end up inside limited companies.
Work it through. A flat rents at £900 a month. You want £180,000 interest-only. At 5.5%, the annual interest is £9,900, or £825 a month. The cover is £900 divided by £825, which is 109%. It fails 125% and it is nowhere near 145%.
Turn the sum round and it tells you the loan. At 145%, £900 of rent supports £620 of monthly interest, £7,448 a year, which at 5.5% is a loan of about £135,400. The property has not changed. The gap between what you wanted and what you can have is £45,000 of your own money.
Your tax return is part of the calculation
The reason 145% exists is section 24 of the Finance (No. 2) Act 2015. The restriction on finance costs for individual landlords was phased in from April 2017 and has applied in full since the 2020/21 tax year. Mortgage interest is no longer a deduction from rental profit. It is a basic rate tax reducer at 20%.
The consequence is that your taxable income includes rent you never see, because the interest comes off the tax rather than the income. Landlords who thought of themselves as basic rate taxpayers found themselves paying higher rate on property they were barely making money on. Lenders responded by pushing those borrowers to the 145% test, because the tax leaves less of the rent available to service the debt.
So a change in your personal circumstances that has nothing to do with property, a pay rise at work, a bonus, a spouse going back to full-time employment, can move you between the two cover bands and reduce what you can borrow on a flat you have already offered on.
The purchase is blocked by a property you already own
This is the part people do not see coming. Portfolio assessment means the lender applies a background test to the properties you keep. Many run the same interest cover calculation across the whole portfolio at a stressed rate, and require the aggregate to pass. Most also impose a maximum aggregate loan to value, commonly somewhere between 65% and 75%.
One property let below market rent, or sitting empty, or on a mortgage you took out when rates were higher, can pull the aggregate under the line on its own. You are not being refused on the new purchase. You are being refused because of a tenancy you agreed three years ago and never reviewed.
That is worth knowing before you need to borrow rather than after, because most of the fixes take months.
- Review rents on the whole portfolio annually, in writing, even where you have no intention of pushing hard. A tenancy 15% under market is a borrowing constraint as well as lost income, and a lender values it at what it collects, not what it could.
- Deal with the void. An empty property has no rent to cover its own interest, so it is pure drag on the aggregate. Letting it at a slightly soft rent before you apply is usually better than presenting a blank line.
The other levers are slower. Five-year fixes soften the stress rate. Reducing leverage on one property lifts the aggregate. Some lenders will consider top-slicing, where surplus personal income is allowed to make up a shortfall in cover, but it is discretionary and it is priced. Incorporating an existing portfolio triggers stamp duty and potentially capital gains, so it is a decision about the next fifteen years rather than the next purchase.
One more distinction worth holding on to. Most buy-to-let lending is unregulated, but consumer buy-to-let, broadly the accidental landlord who did not set out to be one, falls under the Mortgage Credit Directive Order 2015 and is assessed against personal affordability rather than rental cover. If you inherited a house or kept the flat you used to live in, you may be in a different regime from the one your broker is describing.
Where this shows up in the game
Letting property arrives in Business Baron with the Property & Construction Track, an add-on to the full game. Lending comes from a named bank manager with a tenure, a risk appetite and a memory, who sets your margin at the annual review and imposes covenants when the figures are poor. The constraint is rarely the deal in front of you. It is the balance sheet behind it.