August 10th, 2018. Tom Rowlands
What is Top-Slicing and Why is it More Common Than Ever?
Top slicing is now more popular than ever, which is great news for some buy-to-let investors applying for finance as it can cover a shortfall in rent. However, is top slicing beneficial to everyone? Our specialist commercial finance brokers discuss just that below.
What is Top Slicing?
Top slicing in buy-to-let refers to a common tactic used by Barclays, Aldermore and many other lenders when rental income achieved by a property is not sufficient to cover the minimum ICR for the loan amount required.
It denotes the process a lender may take where they assess a borrower’s income, as well as income from rent on the property in question, when deciding how much money they will loan. When assessing the borrower’s income, they will look at outgoings and calculate how much surplus they have in order to cover any rental income shortfall.
This will usually require the borrower to be able to afford a sum greater than the actual monthly repayment – commonly up to 145%.
Please note: If a joint application is made, both applicant’s income may be assessed, making an application more likely to be successful.
Is Buy-to-Let Top Slicing a Good or Bad Thing?
Well, that greatly depends on how you look at it.
For medium to high earners with minimum debt, top slicing could allow them to borrow where a traditional, box-ticking approach would not. It could also be beneficial for landlords looking to buy higher value properties which may have lower rental yields.
However, things get complicated when it comes to portfolio landlords. Buy-to-let landlords with four or more mortgaged properties will have their entire portfolio assessed to ensure they can withstand any rental voids, and rate or tax changes.
This could mean that a borrower falls outside the lender’s parameters and their application is therefore declined. As a result, some lenders will not consider a portfolio lender for a top-slicing deal.
Please note: Top slicing is not available to limited companies, HMOs, or first-time buyers.
So, why is buy-to-let top slicing on the rise? Well, many see it as a necessary route after the Prudential Regulations Authority (PRA) launched stricter guidelines for landlords in October 2017.
You can find out all about this in our post: What Effect Has the 2017 PRA Changes Had on Lending?
Is Top Slicing Right for You?
At Pure Commercial Finance, we help you find a competitive deal that works for you. Our buy-to-let mortgage brokers will gather information on your circumstances and financial desires, then present you with suitable funding that fits your needs.
Get in touch today to see how our brokers can help you make that new purchase a reality.
Article By Tom Rowlands
August 10th, 2018
Tom joined Pure Property Finance in 2017 after a career as a Client Wealth Manager, where he spent just under 3 years advising on financial and tax planning. Tom specialises in bridging finance and property development funding, having completed deals ranging from a simple £30K property purchase through to £2m+ mixed-use developments.See more articles by Tom