For established property investors with several properties, borrowing to grow your portfolio was previously a challenge. Lenders were used to lending to smaller investors rather than to large portfolio investors. Now, the profile of landlords is changing. So-called ‘dinner party landlords’ with one to two properties are no longer viable business models. Instead, there are now more opportunities to refinance and leverage larger, high-yielding property portfolios. Here are three things that lenders are increasingly looking at when approached for finance:
● Portfolio size and type
Lenders now tend to favour larger property portfolios as they provide more stability across different properties and prove experience. As smaller landlords have left the market over the past few years, lenders are now looking for experienced investors as they are more likely to have more properties, more complex portfolios, and multi-income properties such as Houses of Multiple Occupancy (HMOs) and Multi Unit blocks rather than single residential properties.
● Funding sources
Lenders will be looking at where the deposit comes from and will require not only proof that you have the funds available but also evidence the trail of where it has came from. They want to see a clear journey through which they can trace the funds. For example, they want to see whether your funds are from savings or intercompany loans or a joint-venture partnership. Where the money comes from indicates to lenders how much skin investors have in the game and their ability to legitimately raise the necessary capital. Lenders like to see a personal commitment to a project.
Investor business model
Lenders are looking less at individual property assets and more at the overall business model of investors and their past track record. Do you have the experience to back up your next project? What is your business model, and what does that mean for a relationship between the lender and borrower in the short, medium, and even long term? Lenders like the opportunity to have a long-term relationship with an investor and want to ensure you are set up right for that.
For more detail on how one lender approaches funding property investors, watch Karl Griggs’ interview with Gavin Seaholme from Shawbrook Bank in the second episode of CPC Finance’s podcast, Let’s Chat Property.