Landlords are well versed in managing change and uncertainty. But no one could have predicted the seismic shift of the last 12 months.
The Buy to Let market – like every other aspect of life – was hugely impacted by the pandemic and mortgage product numbers fell sharply between Spring and Summer last year.
The Private Rented Sector has had to cope with the impact on tenants of the pandemic and government intervention which effectively banned evictions until 31st May.
But this sector is nothing if not resilient.
The fundamental drivers of Buy to Let – a rising population, insufficient supply of affordable housing to buy, more single person households, and financial barriers to homeownership – mean that demand for privately rented homes will remain strong.
That’s great news for landlords, and brokers. But it’s become more challenging to place Buy to Let landlords, as we’ve seen some changes in the market combined with the financial fallout of the pandemic on tenants and landlords.
Which is why broker advice is more important than ever.
Tighter lending criteria
Lenders have adapted to create innovative products to give landlords more flexibility and boost their borrowing power.
For example, when regulators restricted lending in 2017, by effectively increasing interest coverage ratios (ICRs) to around 145% and stress testing to 5.5%, it became harder for some landlords to get the numbers to stack up.
Step in Top Slicing
We understand the rules can be frustrating for some landlords, who feel capable of meeting their mortgage repayments with rental income were it not for the rules, plus have surplus disposable income should they need it.
With Top Slicing a landlord can have their own personal income considered as part of the application alongside the rental income – subject to affordability of course.
Who needs Top Slicing?
Top Slicing tends to be more useful for landlords buying higher value properties at higher LTVs, where the mortgage repayments are significant, because hitting an ICR of 145% isn’t always achievable.
It’s therefore more prevalent in London and the South East, although Top Slicing is available and required by landlords across the country.
In practice, it allows landlords to boost their buying power and purchase higher value properties, where affordable. Or helps them refinance if the goalposts have moved since they took out their last mortgage.
Some homeowners are using Top Slicing to help them to take a Let to Buy mortgage on their existing home and move to a new residential property, while retaining their original home as an investment and renting it out.
Top Slicing provides a smart way for some of your clients to overcome borrowing barriers, providing they can prove the repayments are affordable.
Best of both worlds
At Bank of Ireland for Intermediaries we offer Top Slicing with a floor down to a 100% interest coverage ratio. This means, as long as the rental income covers the stressed mortgage repayments, your clients can use Top Slicing to boost their borrowing, so they meet our standard ICR of 145%.
Most importantly, you get the high quality of service you’d expect from a trusted lender, with an easy and efficient online system and consistent service levels that brokers and clients can rely on.
The Buy to Let mortgage market is competitive and diverse, with innovations such as Top Slicing enabling landlords to find the right product to meet their needs and circumstances.
But many landlords still need the expertise of a mortgage broker to help them find a mortgage, especially after the changes and challenges of the last 12 months. Your up to date market knowledge and experience of dealing with lenders mean you can really add value.