Selling Your Portfolio to Clear Mortgage Debt
Higher borrowing costs and refinancing challenges have made some heavily mortgaged portfolios hard to sustain. Here is how a sale works when there is a mortgage, and who to speak to first.
For many years, interest rates were low, and many landlords built portfolios with significant borrowing. As rates rose and fixed-rate deals came to an end, monthly mortgage costs for many landlords increased considerably.
Landlords with interest-only buy-to-let mortgages felt this directly, because the whole monthly payment is interest. A portfolio that was comfortably cash-flow positive at a low rate can become loss-making at a higher one. Lenders also assess rental cover when you refinance, so some landlords find their options are more limited than they expected.
For some landlords, selling part or all of a mortgaged portfolio is a sensible way to reduce or repay debt. For others, refinancing or restructuring may be better. Speak to your lender and an independent adviser before deciding.
The Debt Challenge Facing Portfolio Landlords
Higher Borrowing & Rate Sensitivity
The more heavily a portfolio is borrowed against, the more sensitive its cash flow is to changes in interest rates. Even a modest rate rise can have a large effect on monthly cash flow where margins are already thin.
Where property values have not risen much, some landlords also find that their loan-to-value is too high to access the products they want when they come to refinance.
Refinancing Challenges
Buy-to-let lenders assess whether the rent covers the mortgage payment by a set margin, tested at a notional interest rate. Where rents are low relative to property values, meeting those tests can be difficult without reducing the loan.
Some landlords end up on their lender’s standard variable rate after a fixed deal ends, which is often more expensive. A mortgage broker can explain the options available for your portfolio.
Mortgages With Several Lenders
Larger portfolios often have mortgages with several lenders, each with different terms, expiry dates and early repayment charges. Keeping track of all of this is demanding. On a sale, the mortgage on each property being sold is normally repaid at completion, so it helps to have up-to-date redemption figures from each lender early in the process.
Personal Guarantees
Lenders to limited-company landlords often ask directors to give personal guarantees. If your company borrows in this way, your own position may be affected if the portfolio cannot service its debt. Ask your solicitor to check exactly what you have signed.
How a Sale Works When There Is a Mortgage
When a mortgaged property is sold, the mortgage is normally repaid (redeemed) at completion from the sale proceeds. Your solicitor obtains a redemption statement from the lender, showing the amount needed to repay the loan on the completion date, including any early repayment charges and fees. Once the mortgage, your solicitor’s costs and any other sale costs have been paid, the balance is paid to you.
If the sale price would not cover the amount owed, the lender’s agreement is needed before the sale can complete. If you are in that position, speak to your lender and an independent adviser before agreeing a sale.
Some landlords sell only the properties with the highest borrowing or the weakest returns, and keep the rest. Whether that would leave the remaining portfolio in a stronger position depends on your figures and your lenders’ terms, so take independent advice.
Capital Gains Tax may also be due on properties that have risen in value; it is charged on the gain rather than on the sale price. Tax and legal treatment depends on your circumstances. Speak to a qualified accountant or solicitor before acting.
Acting Before the Pressure Becomes Critical
If you are concerned about your mortgage payments, the most useful step is to talk to your lender early and to get independent advice. Free, independent debt advice is available if you need it. Considering your options while you still have time to choose usually gives you more control than acting under pressure.
A planned sale allows time to take tax advice, manage communication with tenants and consider offers carefully. We can explain how a portfolio sale works, give you an indicative market view of your properties and discuss realistic timescales. We do not advise on or negotiate your borrowing, and we do not give financial advice.
If your mortgage deal is ending soon, your portfolio is cash-flow negative or your lender has raised concerns, you are welcome to call us for a discreet, no-obligation conversation alongside the advice you take from your lender and your adviser.
Frequently Asked Questions
Yes. Many portfolio sales involve properties with outstanding mortgages. The mortgage is normally repaid from the sale proceeds at completion, and the balance after costs is paid to you. Your solicitor will obtain redemption figures from your lender, which will show any early repayment charges and fees.
Speak to your lender straight away and get independent advice – free, independent debt advice services are available. Your lender and adviser can explain what is happening and what your options are. A sale may be one option, but whether it is possible, and on what terms, depends on your lender and your circumstances. We can explain how a sale works and give you an indicative market view, but we do not advise on or negotiate with your lender.
Some mortgages carry early repayment charges if they are repaid before the end of a fixed or discounted period. The amount depends on your mortgage terms. Ask your lender for a redemption statement, which will show any charges, and take independent advice on how they affect your plans. Any charges will reduce your net proceeds.
Yes. Some landlords sell part of their portfolio to reduce borrowing and keep the rest, and we can discuss which properties are likely to interest buyers. Some portfolio mortgages are secured across several properties, so check with your lender how the sale of individual properties would be handled, and take independent advice on whether a partial sale makes sense for you.
When a property is sold with tenants in place, the existing tenancy continues and the buyer becomes the landlord. Tenants must be told about their new landlord when the sale completes. Your solicitor will deal with the legal requirements, including tenancy deposits.
Understand Your Position Before You Decide
A portfolio appraisal gives you an indicative market view of your properties, which you can use alongside redemption figures from your lender and advice from an independent adviser. It is a desktop market appraisal, not a RICS Red Book valuation, and there is no obligation to proceed.
Request a Portfolio Appraisal Call 01952 433 399We handle your information discreetly.