What does Top Slicing Mean?
Top slicing in the context of buy to let mortgages is the ability to use disposable income to increase the loan amount where the rent alone would be insufficient.
It was introduced after a raft of regulatory changes limited the loan amount based on the rent over the past few years. Lenders that offer this, and there are numerous, often have a detailed calculator that assesses a clients affordability much like they would for a residential mortgage, identifying how much spare or disposable income they have after paying all their bills and then allows a percentage of tat to top up a rental shortfall. The National Landlord Association discusses this here.
There are no hard and fast rules about what qualifies, and lenders differ significantly, however we most often see this in the South East and with clients earning in excess of £75,000 per annum.
Typically an assesment is made that factors not just income but the clients expenditure, number of properties, number of dependants and often includes a number of other thresholds relating to the buy to let property itself.
What are the downsides then?
There are some potential pitfalls with using this approach, however. The most significant of these are the fact that there are a limited number of lenders offering this service and that its dependant not only on the rent but also the client’s income.
Its quite possible that they could become mortgage prisoners if they changed jobs, or if the lenders changed policies. Given the turbulent nature of BTL lending over the past few years this isn’t an unreasonable concern.
The overall portfolio is now also considered when making lending decisions, at least for clients with 4 or more properties, and therefore if loans are increased beyond what most lenders will allow, the portfolio ceases to be viable, and this may affect any future loans even on brand new property.
When used modestly top slicing is an extremely useful tool, and it allows sales to proceed even if the results of a survey dont quite come back as expected. Because surveyors need to use evidence of existing sales and rentals, they may be much more cautious on price and buy to let investors may be factoring in gentrification or regeneration of an area into the loger term value.
A great example of this is the Crossrail area.
Investors who bought shortly after the project was started have seen values in the area rocket in the proceeding years, however surveys were still tied to past values and didnt consider potential growth. Investors using topslicing could take advantage of these opportunities.
Will it work for me?
Making use of buy to let top slicing is something that needs to be done carefully and within the context of your wider strategy. If the above can be balanced and the subject property is worth stretching for, then it can be a very valuable tool to understand and make use of.
Here we have collected a set of commonly asked questions when dealing with queries of this type, as well as a table of lenders who offer buy to let top slicing and some of their key criteria points.
This is only a basic guide however, and every scenario is different. We recommend giving our brokers a call or using the live-chat below to get completely free, impartial advice
Frequently Asked Questions
Click here to view lender matrix
|The Mortgage Lender||Yes|
|Vernon Building Society||Yes|
|Zephyr Homeloans||Yes||£50k p/a|
|Metro Bank||Yes||£50k p/a|