What is top slicing and how does it work?
Ever since the disastrous mini-Budget back in September 2022, mortgage affordability has been stretched. Lenders have tightened their criteria, and interest rates have risen, making it not only harder to get a Buy to Let mortgage, but also remortgage onto a new deal for existing landlords. As a result there’s a number of landlords who are leaving the market, having no choice but to sell up when faced with unaffordable mortgage costs.
If you’re struggling to pay your current Buy to Let mortgage, or are worried about remortgaging onto a new deal, you might have heard of top slicing as a possible solution. But what actually is it? Find out below.
What is top slicing?
Top slicing is when a mortgage lender factors in a borrower’s personal income alongside rental income from a Buy to Let property to secure the loan. A top slicing mortgage is used when the property’s rental income isn’t enough to sufficiently cover the repayments of the Buy to Let mortgage.
Top slicing is more common in areas in the UK where property prices are high and rental yield is (relatively) low. Top slicing could allow you to keep your investment property in an area like London or the South East by using your personal income to make up the shortfall.
How does top slicing work
When assessing rental income, lenders usually want Buy to Let properties to have an interest coverage ratio of 125%, meaning that the monthly rental payments should be 25% higher than the monthly repayments for the Buy to Let loan. If the rental income isn’t enough to cover the repayments, top slicing could be the answer. It works by supplementing the rental income from your Buy to Let property with your personal income to make up the affordability shortfall, allowing you to get a Buy to Let mortgage or remortgage onto a new deal.
Top slicing is often the solution for existing landlords who need to remortgage their Buy to Let property but are struggling to pass lenders’ mortgage affordability criteria. Or for newbie landlords who have bought a Buy to Let property where property prices are high in comparison to the cost of rent.
Which lenders offer top slicing mortgages?
Not all lenders offer top slicing mortgages, and those that do often have strict criteria. Lenders that consider this type of mortgage will assess a borrower’s income, outgoings and credit history to calculate how much surplus income they have available to cover the rental shortfall. They’ll then look to see if this is enough to make up the gap between your current rental income and your mortgage repayments.
Because top slicing is still a niche solution, lenders that do offer it may only accept certain applicants. For example, they may not accept borrowers who are first time buyers, or who are purchasing new builds.
But if you fall into this category, don’t lose heart, as there may still be lenders who will approve you for a top slicing mortgage. To understand what options are available to you before you apply to a specific lender, speak to an expert mortgage advisor.
Should I get a top slicing mortgage?
Before you apply for a top slicing mortgage, it’s worth seeking expert advice from a trusted mortgage advisor, like Tembo. We specialise in helping buyers and remortgagers find ways to boost their mortgage affordability, so they can buy sooner or remortgage onto a new deal. This includes new landlords as well as those with portfolios.
See what you could be offered today
To see what you could be offered for a Buy to Let mortgage, including top slicing options, create a free Tembo plan. We’ll show you a personalised recommendation, so you can understand what options you’re eligible for - in seconds.