Top slicing and buy-to-let: What you need to know
Top slicing and buy-to-let haven’t always been the most obvious bedfellows.
However, in the current buy-to-let market, top slicing might just be key to qualifying for that new mortgage.
Top slicing and buy-to-let: what does it all mean?
Top slicing refers to the process by which a landlord’s personal income can be used to help obtain a mortgage.
Essentially, instead of just calculating property portfolio profitability, some lenders will now take personal income sources (including salary, investment or pension income) into account when assessing eligibility.
This technique is particularly useful for landlords purchasing high-value properties with low rental yields. Participating lenders can simply calculate personal income from external sources to cover any shortfall.
Why is top slicing increasingly important for landlords in the current market?
As of September, the Prudential Regulation Authority (PRA) has begun enforcing stricter stress-testing rules for buy-to-let mortgage applications.
This change might well have passed you by. And, if you operate a portfolio comprised of fewer than four properties, you’ll be exempt from the new rules.
However, if you’re not exempt, mortgage lenders must now assess the profitability of each individual property in your portfolio. They will check that the monthly rental income is equivalent to at least 125% of the mortgage payments, with some lenders calculating at 145%.
You must also be able to demonstrate that you can maintain repayments, even with an interest rate of 5.5%.
Don’t forget about top slicing and buy-to-let next time you’re applying for a mortgage!
Call on 3 Wise Bears for more handy buy-to-let advice and guidance.