Here we are again on a Friday with more positive news about products returning to the market – always good news!  Not only because it makes our life easier, but also as it’s a great sign that things are improving.  Confidence is such a big part in the future of the housing market and its important we continue with the momentum that the stamp duty holiday has created.

So what is top slicing?

It is when the lender uses your outside income on top of the rental income from your buy to let when it isn’t generating enough itself.  We can use income from your outside portfolio where it allows, or from your other earned income.  There are various stresses on the outside portfolio and your own mortgage payment so you’ve got to check it all works.

What are the benefits of top slicing?

There are many, so I’ll go through them:

  • It allows you to buy a property where the yield isn’t high enough. This allows you to take advantage of properties which may have other advantages like a potential capital growth through location, refurbishments (over time) and extending the lease as examples.
  • Where you have a property which was bought before the new higher stress tests, it may not fit on a remortgage now. This allows you to move lender, as well as potentially raise more funds without selling the property.
  • The property may fit on a 2 year fixed, but due to the increased stressed rate of these you only have the option of a 5 year. Top slicing will allow you to have the opportunity you use the 2 year fixed rate if that is a priority for you.
  • If the property is in a lettable condition, but you know that a lick of paint and change of floor coverings will ensure that you get a higher rental, this will allow you to buy it in its current state without using a bridging loan.

How does it work?

The lender will use its usual stress tests to work out what the minimum rental requirement is, based on the loan you are looking to borrow.  We can then look at what the actual rental figure is (which needs to be confirmed by the valuer) and this will give us a shortfall figure.

If you have an outside portfolio, we can use any additional income from this.  We do have to use an artificially inflated interest rate on your mortgages so its not just as case of what is left, but we can use the gross rent.

If you don’t, then we can look at additional income from other sources. Generally, this would be shown through your SA302 or payslips and then last 3 months bank statements to prove the disposable income.

As always, please give us a call if you want to run through any examples.  Have a good weekend!

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