Buy To Let Mortgages: What Is Top Slicing?

People looking to take out buy to let mortgages at the moment may be somewhat deterred by fluctuating interest rates and shifting regulatory landscapes, with issues such as increased stamp duty for additional properties, lower stamp duty thresholds, the renters’ rights bill and forthcoming energy-efficiency upgrades all putting a squeeze on finances.

While these issues are certainly something to be mindful of, they don’t necessarily mean you should abandon your dreams of building a rental property portfolio… and if you’re looking for an avenue of support to help facilitate your ambitions, then you might want to consider top slicing as a potential option.

What is top slicing?

Landlords with affordability concerns can make good use of top slicing, where lenders consider their surplus personal income to make up for any shortfalls in rental incomes required to secure the loan they need to invest.

This is a particularly attractive option for landlords looking to operate in places like London, where property costs are high and rental yields are low. 

Here, you could potentially see your borrowing potential increased through top slicing, allowing you to purchase your buy to let while giving your lender the assurance they need that mortgage repayments will be met.

How does top slicing work?

Typically, lenders will want buy to let properties to deliver interest coverage ratios of 125 per cent, which means that your rental income each month should be 25 per cent higher than the monthly payments you make on the mortgage.

If circumstances mean that your rental income won’t cover the repayments, top slicing allows you to supplement this income with personal funds to cover the shortfall, allowing you to take out a loan at more affordable rates.

Do you need a broker if you’re considering top slicing?

Not every lender will offer top slicing as an option and you’ll likely find that those that do have strict criteria in place. 

Given this, it is generally advisable to use a mortgage broker as they’ll be able to communicate effectively with lenders, ensuring that your needs are understood and that the most appropriate products are put forth.

By working with a broker, you’ll enjoy greater access to the full range of mortgage products on the market, as well as enjoying greater levels of insight into the market itself. The landscape is proving particularly challenging at the moment and it can be confusing to go it alone – and, as such, the support of a broker can prove invaluable.

What is the criteria for top slicing a buy to let mortgage?

Every lender will have their own criteria, but you can largely expect for the following to be in place:

– Personal income before tax and excluding rental income of at least £50,000

– Rental income of at least 100 per cent of the mortgage interest payment

– Not available for first-time landlords

– Properties can’t be a new-build development

– Not an option for let to buy applications

Of course, this is only a quick guide into top slicing. If you’d like to find out more, get in touch with the BR Needham team today.