59% of London-Based Buy-to-Let Buyers Now Purchase Outside the Capital. What Happens to the Finance?

More than half of London-based investors buying rental property this year have purchased outside the capital. Hamptons puts the proportion at 59%, according to The Times. The financing question is increasingly how a landlord can use an established portfolio to support acquisitions in a different market.

The report, published on 2 October, describes investors looking beyond the area in which they live. It also notes that London-based investors have bought more homes outside London than within it every year since 2015. This is an established shift with a commercially important consequence: the investor’s home address, existing assets and next acquisition may all sit in different markets.

For a landlord holding valuable London property, that can create an opportunity to reconsider how capital is deployed. It can also expose a constraint that a simple property valuation misses. Equity may be substantial, while the rent supporting further borrowing remains limited.

A £2m London Portfolio Can Have £800,000 of Equity — Without £800,000 Available to Spend

Consider an illustrative landlord with two London flats worth £2m in total and £1.2m of mortgages. The combined loan-to-value is 60%, leaving £800,000 of equity before selling costs and any tax consequences.

That equity is part of the landlord’s wealth. It is not an immediately available acquisition budget. Accessing it requires either a disposal or additional borrowing, and the consequences of those routes are materially different.

If a hypothetical refinancing allowed debt to increase to 75% of the same £2m valuation, total borrowing would reach £1.5m. The theoretical additional borrowing would therefore be £300,000 before costs. That is an arithmetic ceiling under the assumed LTV, rather than a lending offer.

The practical question is whether the existing flats generate sufficient rent to support that additional debt under the chosen lender’s assessment. The answer could be considerably less than £300,000. A valuation below £2m, existing repayment charges or a property-specific issue could reduce the amount further.

Rental Cover Can Decide Whether the Next Purchase Works

Buy-to-let lending commonly considers the relationship between expected rent and mortgage interest through an interest coverage ratio, or ICR. The assessment may use a stressed interest rate rather than the initial rate the borrower pays. The PRA’s underwriting framework also recognises income-based affordability assessment where personal income supports the borrowing.

This creates two separate questions for an investor releasing capital: can the existing property support the proposed refinancing, and can the new property support its own mortgage? Passing one assessment does not automatically solve the other.

The following example uses a hypothetical 145% rental coverage requirement and a 5.5% annual stress rate. These are illustrative assumptions, not a quotation or a statement that every lender uses these figures.

The rental-test calculation divides annual rent by the assumed stress rate multiplied by the assumed coverage ratio. For Property B, that is £12,000 divided by 5.5% multiplied by 145%, producing approximately £150,470. Property A supports more borrowing on that calculation, but the separate assumed LTV limit still caps the loan at £187,500.

On these assumptions, Property B needs approximately £99,530 of purchase equity before transaction costs, compared with £62,500 for Property A. The difference is nearly £37,030 despite an identical purchase price. This is why a landlord’s deposit budget needs to be tested against the actual rent and lender requirements.

Releasing a Deposit Creates Another Interest Bill

An acquisition can look attractive when considered on its own. The picture changes if its deposit comes from refinancing another property. The new investment then needs to be assessed alongside the additional cost on the asset providing that deposit.

For example, £100,000 of additional interest-only borrowing at an assumed 6% costs £6,000 a year before fees. That cost belongs in the overall strategy even if it is paid from the London property’s rental account rather than the new property’s account.

A useful comparison therefore shows the cash generated by the existing holdings before and after the capital raise, together with the new acquisition’s expected income and expenditure. Otherwise, an investor can mistake a larger portfolio for an improvement in spendable income.

The refinancing may also change the price of existing debt. If raising capital requires replacing a mortgage that still has a favourable fixed rate, the cost can extend beyond the extra £100,000. Product fees and early repayment charges can add to that difference. The timing of the existing mortgage matters as much as the amount of equity.

A Regional Portfolio Needs Local Costs in the Calculation

Buying further from home may make professional management more important. The investor should obtain actual management terms and a realistic maintenance budget for the property being considered. Travel, inspections and arranging contractors can also become more demanding when the owner cannot visit easily.

Gross yield measures annual rent against the purchase price or property value. It does not deduct letting fees, repairs, insurance, service charges, empty periods or finance costs. It also says nothing about how quickly a property could be sold if circumstances change.

Two properties with the same gross yield can consequently produce different cash outcomes. A leasehold flat with substantial service charges, a house requiring immediate work and a recently refurbished property should not be treated as equivalent simply because their advertised rent-to-price ratios match.

Before choosing the finance, the investor needs a credible operating budget. The borrowing review can then test a longer empty period, unexpected expenditure or a higher future mortgage payment against that budget. Those scenarios help establish how much cash should remain available after completion.

The Fourth Mortgaged Property Can Change the Underwriting

Under the PRA framework, borrowers with four or more distinct mortgaged buy-to-let properties are treated as portfolio landlords. The framework calls for a specialist underwriting approach, considering the wider holdings, debt and cash flows. It also identifies property and geographical concentrations as relevant risks.

A landlord expanding from two London flats into several regional purchases should therefore review the intended sequence before submitting individual applications. The fourth mortgaged property may change how a lender examines the case. Current criteria need to be checked for the borrower’s ownership arrangements and intended portfolio.

Preparation becomes easier when one property schedule records consistent values, rents, mortgage balances and expiry dates. An investor who presents each acquisition in isolation may miss a refinancing deadline elsewhere or discover late in the process that the chosen lender needs a fuller picture.

Geographical expansion should also be described accurately. Several homes in one town may reduce exposure to London while creating a new concentration in a particular local employment or rental market. The investor’s chosen strategy needs to explain how that concentration will be managed.

Retain, Refinance or Sell? Compare the Whole Outcome

For an investor with valuable London holdings, there are several plausible routes. Keeping the properties and purchasing with existing cash preserves the current mortgages but uses liquidity. Refinancing retains the assets and increases debt. Selling one property reduces the existing portfolio and may provide capital without an additional mortgage on the retained holdings.

The useful comparison starts with the investor’s objective. Someone seeking more current income may reach a different conclusion from someone prioritising long-term capital exposure, administrative simplicity or a gradual reduction in borrowing.

Tax and transaction costs can materially affect the result. An accountant or tax adviser should assess the implications of a disposal and the proposed ownership of new acquisitions. The finance review then needs to use that intended structure, including any company borrowing requirements, rather than assuming ownership can be changed later without consequence.

There is no reason to sell a London property solely because other investors are buying elsewhere. The news provides a reason to review the numbers. It does not replace the investor’s assessment of the assets they already own.

What a Portfolio Geography and Debt Review Should Show

How Willow Private Finance Can Help

Willow can review the borrowing required to support an investor’s chosen acquisition strategy. That can include capital raising against existing buy-to-let property, financing new purchases and comparing appropriate lenders for personal, company and portfolio borrowing.

The starting point is a schedule of the existing properties, together with details of the proposed acquisition and the investor’s available cash. The review can then establish where rental affordability restricts borrowing, which existing mortgages are expensive to replace and how much liquidity remains after completion.

For accountants and other professional advisers, this provides a practical way to connect ownership and tax planning with executable finance. The investor chooses the market and property; the accountant assesses the tax position; the mortgage review establishes what the debt can support.

With 59% of London-based buy-to-let buyers purchasing outside the capital, this is an increasingly relevant discussion. The decisive result is whether the expanded portfolio produces the income, resilience and flexibility the investor intended.