There is no legal limit on the number of commercial mortgages any one individual or business can hold. However, there can be many lender-determined limitations. In the first instance, all commercial lenders will have limits on either the total number of mortgages, or the total amount of borrowing (or both) that any one individual or business can hold with that lender, in order to limit their own credit risk. Some lenders will also limit the total number of mortgages that a single borrower can have across their entire portfolio.
One special category of commercial mortgage holders who commonly hold more than one mortgage are buy-to-let (BTL) landlords. BTL landlords may hold a portfolio of residential properties which are let out to tenants. The industry standard definition of a portfolio landlord is usually taken as being one with four or more mortgaged properties. Since these are more often professional landlords for whom property management is a full-time occupation, and whose property portfolio will have a very substantial effect on their finances, these landlords are usually scrutinised more closely by lenders.
When deciding whether to extend a mortgage offer to a portfolio landlord, lenders will evaluate the risk on the landlord’s entire portfolio of properties, as well as against the individual property being mortgaged. The exact restrictions imposed would depend on the lender. Lenders would typically require that the portfolio have a loan to value (LTV) ratio of no more than 65-75%, and that the interest cover ratio (ICR – the ratio of rental payments on the portfolio to mortgage interest payments) be at least 125%, and perhaps as high as 145%. Lenders will also stress test the ICR based on various increases in the benchmark interest rate.
A second common case would be a company specialising in commercial property investment (i.e. a commercial landlord) who will often have a diverse portfolio of properties spread across a region, or nationwide. In this instance, such companies would typically work with specialist lenders to distribute borrowing efficiently across portfolio and use their size to gain access to preferential terms and lower interest rates.
A different case would be the example of a business which owns a portfolio. This kind of borrower may sound superficially like the portfolio investor above, but in fact represents different risks to the lender. The fact that these properties are all tied to a single business, the owner, in (usually) a single industry, represents risk, as does the fact that the buildings may be located close together, or alternatively may all be of similar type (such as retail stores, office space, or warehouses). This introduces concentrated risk in that, if the owner-occupier defaults on one loan, they may all be defaulted on, and a deterioration in business conditions in a single industry, or in a single location if the business is local, could cause such a default. Against that, if the premises are essential to the operations of the business, the owner-occupier presumably has a very strong incentive to stay current on their mortgages. The lender must balance all these considerations, together with the existing risks of their portfolio, to make a lending decision.
A commercial mortgage broker is an expert in commercial mortgages and has access to a wide range of lending options from various lenders. They understand the complex requirements of different lenders and can provide tailored solutions that meet the specific needs and goals of their clients. By working with a commercial mortgage broker, you can save time, effort and money in the loan process as they will handle negotiations and paperwork, and often secure better terms and rates compared to going directly to a lender.
You can find the UK’s best-rated commercial mortgage brokers in our commercial mortgage adviser directory.
