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.
You might also be interested in Jeni's other blogs:
27.07.2015 Buy to let - from personal to limited company ownership
Prior to now, when asked by clients whether buy to let properties should be bought in their own names or whether they should use a limited company we have always said “it all depends”. Well the Summer Budget 2015 has altered everything and whilst the answer is still “it all depends”, the balance has shifted markedly in favour of limited companies.
11.11.2015 Setting up an SPV Limited Company
Buy to let lenders which offer mortgages to limited companies usually require the limited company to be an SPV (Special Purpose Vehicle). Jeni explains what one is and how to get one.
19th May 2016