How to Increase the Chance of Getting a Buy-to-Let Remortgage? 

As a Buy-to-Let investor, you face tough challenges with increasing regulations, tax changes and the cost of living crisis. 

Many view Landlords as wealthy individuals, but this is not necessarily the case, as many Landlords are “accidental landlords” who keep their residential property for various reasons. This becomes a future Pension and much-needed income for them. 

According to www.gov.uk, in their 2021 survey, 43% of landlords own one property, 39% own between two and four properties, and the remaining 18% own five or more. Complete statistics are here: https://www.gov.uk/government/statistics/english-private-landlord-survey-2021-main-report/english-private-landlord-survey-2021-main-report–2.  

According to www.money.co.uk, around 60% of landlords have a mortgage on their properties. 

If you read this as a Landlord with a BTL mortgage, you may have secured your mortgage on a preferential fixed rate of around 2%, which could end soon. You will be shocked when you see the new rates on offer, and changing lenders may be highly challenging, meaning you could be stuck with your existing lender on a non-competitive rate. 

All Buy-to Let lenders have a rental calculation which ultimately predicts what a lender is willing to lend to you. When rates were at 2%, the rental income required was far lower than today’s calculation. Rent payments have increased but are not in line with the increase in interest rates. 

Realistically, based solely on rental income on today’s rental assessment, you will be lucky to borrow 50% loan-to-value. This is because lenders based their assessment at over 5% + 125% or 145% as high-rate taxpayers. Each lender has their calculation, of course. 

So what is the solution when you cannot get a buy-to-let remortgage through? 

If you have a decent income, “Top Slicing” could be a perfect solution to secure a market-leading Buy-to-Let remortgage. 

Top slicing is an alternative approach to a pure rental affordability assessment that can significantly increase your chances of getting your buy-to-let mortgage application approved. But what exactly is top slicing, and how can it benefit you as a landlord?  

In this blog post, we will delve into the concept of top-slicing, how it works, and why it could be advantageous for landlords looking for a buy-to-let remortgage. We will also look into some key benefits of top slicing and how lenders use it to assess affordability.  

Understanding Top Slicing: 

Top slicing is a technique that allows many lenders to calculate how much money you can borrow based on the rental income of your property coupled with your income. This approach can be beneficial for landlords who own rental properties with low yields or no tenants at the time of mortgage application. Furthermore, if a surveyor down-values the rental income of your BTL property, this can be useful. 

Under a top-slicing method of assessment, lenders will consider your rental income as a source of affordability, alongside your excess personal income, as opposed to solely relying on your rental income. However, this does not mean that top-slicing completely ignores the property’s rental income; instead, it supplements the rental income in determining affordability.  

Key Benefits of Top Slicing: 

One of the most significant advantages of top slicing is that it can often enable landlords to borrow more money than they would have otherwise been able to under traditional rental affordability assessments. Since lenders can consider your income, landlords may be able to access better mortgage rates and terms than under other mortgage application processes.  

Top slicing can also be an excellent option for landlords with multiple properties, as it provides a more holistic approach to affordability. Instead of looking at each property in isolation, top slicing allows lenders to consider the landlord’s entire portfolio, potentially unlocking better mortgage deals for the landlord.  

How Lenders use Top Slicing: 

Lenders who offer buy-to-let mortgages will initially ensure their borrowers meet specific criteria, such as minimum rental income for the property. These ratios can vary from lender to lender, with some requiring as much as a 145% rental income coverage against mortgage payments. However, where rental income is short, they allow top-slicing to make up the difference. Many lenders will wish to ensure the rental income alone can cover 100% of the month mortgage payment.  

To calculate your rental income, lenders usually use a combination of metrics, such as local rents, rental values of other properties in the area (comparable evidence), the type of property you own, your level of borrowing, and your current cash reserves. All these factors will be taken into account when assessing your total borrowing power.  

What to consider before applying for a top-sliced buy-to-let mortgage: 

While top slicing can offer several benefits, there are a few things to consider before applying for a top-sliced buy-to-let mortgage. For one, lenders will assess your income as a supplementary source of affordability, meaning you still need a strong credit history and proof of stable income to qualify for the mortgage. Additionally, while lenders use strict affordability checks, there is still a risk that you may not be able to meet your monthly mortgage payments if rental yields fall in the future. 

Conclusion: 

Top slicing can be an excellent option for landlords looking to remortgage their properties, particularly those with low rental yields or those operating in areas with low rental market rates. It allows lenders to consider your property’s rental income alongside your personal income, resulting in a more accurate assessment of affordability. 

If you need to use top slicing as an option for your buy-to-let remortgage, it is essential to check with an expert independent mortgage adviser to determine whether this solution will work for you. 

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People commonly utilise equity release for retirement, but buy-to-let landlords can also use it for buy-to-let properties.

Is an equity release mortgage available on a buy-to-let property?

As a landlord, you may have contemplated selling your buy-to-let property to raise income for retirement. However, this may result in capital gains tax. Instead, consider acquiring the funds through equity release.

Although do bear in mind that options may be restricted because most providers will refuse landlords outright if the property you are releasing funds is a buy to let. It is, nevertheless, not impossible. A small number of providers cater to investment property owners by adhering to tight requirements instead of retirement loan organisations that only engage with residential homeowners.

Your rental income will be unaffected if you take a tax-free lump payment from your buy-to-let property. In addition, if you own numerous buy-to-let properties, you may be able to release cash from all.

To be eligible for equity release services, you must be over the age of 55. Provided you fulfill the remaining provider’s requirements, the money you choose to release can be utilised for about every lawful reason, from retirement to pay for a holiday.

How much equity may be retrieved from a buy-to-let property?

Up to 44% of its worth. This is the maximum amount you may release from your buy-to-let property with a lifetime mortgage. The amount, however, will be determined by the following factors:

1. The worth of your buy-to-let property
2. How much equity has been built up
3. Your age

A property with a high value and plenty of equity will allow you to release more cash than a property with a low value and little equity. However, age is a significant factor in a provider’s calculation. Older borrowers may typically release more equity than younger borrowers, and the maximum loan-to-value ratio is usually allocated for them.

To qualify for the buy-to-let equivalent of a lifetime mortgage, you must fulfil the following requirements:

1. You must be 55 or older
2. You must have adequate equity in your buy-to-let
3. You must have tenants in your BTL
4. You must have an assured tenancy agreement in place.

What is the process of obtaining a buy-to-let equity release mortgage?

If you use an equity release service, your provider will apply a fee on your buy-to-let property in exchange for allowing you to release some of the cash you’ve built up, either in monthly installments or as a lump payment.

Fortunately, there are no required monthly payments during the loan period. It is possible for the interest to be rolled up and added to the debt at the end of the agreement, occurring when the last remaining borrower enters long-term care or passes away. There are, however, products available if you want to make capital payments before the end of the agreement.

If the property’s value falls, leaving the provider with a debt, fortunately, your beneficiaries will not be saddled with the payment. This is due to the Equity Release Council’s called the Negative Equity Guarantee.

Releasing Home Equity to Invest in a Buy-to-Let Property?

If you have enough equity in your main residence, you may be able to release enough for a deposit on an investment property.

Remortgaging is the simplest way to unlock equity from your home, and many property investors do so to fund their future investments. If your home isn’t due for a remortgage for a few years and you still have Early Repayment Charges (ERCs) in place, remortgaging early will be costly; therefore, you could consider taking out a further advance. A further advance is when you borrow more money from your present lender, generally at a higher interest rate than your current mortgage, and use it as your deposit. When the time comes to remortgage your house, you may use the equity to pay off the additional advance.

Compared to saving enough money month after month, this is a significantly faster approach for many people to obtain a deposit for an investment property. A 15-25% deposit is required for buy-to-let property purchases; the more significant the deposit, the better the mortgage rates you’ll have access to.

Thinking of Using Conran Mortgages?

If you’re thinking of releasing equity, it’s a good idea to get expert guidance, as releasing equity from a property isn’t something you should do lightly. You’ll need to weigh all options and, if equity release is the greatest choice, make sure you get the best price on the market.

A broker will not only go through all the alternatives available to you in detail but will also explore the whole market for the best product for you, lead you through the process, and assist you with any paperwork along the way.

Call Conran Mortgages at 0800 689 3173

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