What is top-slicing in buy to let world?

In very basic terms, top-slicing is where the lender uses the borrower’s personal income to top up any shortfall in rent which is needed for the borrower to obtain the loan amount they require.

It’s a term which I expect will be used more and more as lenders increase their stress tests for individual borrowers.

Currently, two lenders actively use top-slicing – Metro Bank and Barclays when making lending decisions.

There is no quick or simple calculation to figure out how it is applied, so here is an example:

A landlord wants to borrow £375k against a property worth £500k. The property generates a rent of £1,500 pcm. To borrow £375k Metro would need the rent to be £2,148 pcm so the landlord is £648 pcm short to make the numbers work. However, the landlord has high income and low outgoings and can easily afford to substitute the shortfall.

Metro Bank will ask the client to fill in a budget planner and if it is clear that the landlord has £648 pcm or more left over from his net income after outgoings, then the Bank will use this to bolster the numbers and lend the full amount.

It's quite straight forward really, although I doubt this type of lending will be around for long with the proposed changes to tax relief coming. So, if it's of interest, I suggest you get in touch sooner rather than later to discuss how it might work for you. You can call me on my direct line detailed below or on 0345 345 6788. 



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