Introduced to counteract the stricter affordability rules set by the Prudential Regulation Authority in 2017, top slicing allows landlords to use their personal income to help meet the higher interest coverage ratio calculations now applied for short-term mortgage deals.
“Top slicing has been a big help in London and the South East where rental yields tend to be lower than in the rest of the UK. Barclays, Skipton and Clydesdale have very strong offerings here,” Mr Cunnington notes.
Precise Mortgages says it now allows top slicing across its entire BTL range to include all eligible personal ownership, limited company, portfolio, HMO, and holiday and student let applications.
“Not only has top slicing helped to unlock our range of two and five-year fixed rate products, it also gives customers flexibility around loan size and more choice with how they manage their portfolio,” Alan Cleary, managing director of Precise, says.
Scope to innovate
As for whether there is scope for more innovation in the BTL lending market, Mr Morrey believes although the sector is far more competitive than a decade ago, landlords and intermediaries would like to see a relaxing of rules, particularly regarding tax.
“One idea would be to permit landlords to transfer their properties from personal to limited company with reduced/eliminated stamp duty.
“Lenders could help by being better at assessing and permitting student lets, holiday lets and Airbnb – all of which tend to be more profitable to landlords, so potentially decreasing risk of defaulting,” Mr Morrey observes.
