Buy-to-let landlords are being courted by lenders in order to help them borrow over the past 6 months. The tough new lending rules have prompted lenders such as Virgin Money and West One to allow borrowers to use their property's rental income and their own income when applying.
Barclays, BM Solutions, Precise Mortgages, Vida Homeloans, Kent Reliance, Aldermore and Metro Bank offer this, known as 'top slicing'.
If the interest rate paid was 5.5%, the property's rental income was required to be 145% (up from 125% previously) of the mortgage payment under new rules introduced in January 2017.
The new rules significantly reduced landlord profits.
Some providers go even further in terms of the income that can be included, as West One for example offers other income to be included if the rental income is over 100% of the mortgage payment.
Jeni Browne of Mortgages for Business says:
"Top slicing is not new. The likes of Metro Bank and Barclays have been using it for a long time and now, as regulatory guidelines are forcing lenders to apply more onerous rental calculations, we are seeing more lenders moving into this space.
This works really well for those who are medium to high income earners, have minimal borrowing and three or fewer buy-to-let mortgages. Top slicing has enabled many borrowers to reach their desired objectives, particularly when a more tick-box approach has failed them."
Be aware that utilising this arrangement could impact upon you in the future:
"For those with four or more mortgaged buy-to-lets, lenders are required to assess the landlord’s entire portfolio and ensure that they are comfortable that the existing arrangements can withstand rental voids, interest rate rises and the tax changes.
To this end, the properties already in the portfolio are also subject to a rental calculation and so having a mortgage which relies on top slicing in the background could mean that you fall outside of the lender’s parameters."
Are you thinking of making a move? Your mortgage adviser can help you to secure the home or investment you are looking for.
Information is based on our current understanding of taxation legislation and regulations which is subject to change.
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