Suffolk Building Society has introduced top slicing on its UK and expat buy-to-let mortgages and revised affordability assessments for residential applicants living in selected tax-free countries.
The changes are intended to give mortgage brokers more flexibility when assessing applications from landlords and UK nationals working overseas.
Top slicing on buy-to-let mortgages
The Society has introduced top slicing across its two-year UK and expat buy-to-let products, allowing borrowers’ personal disposable income to supplement rental income when assessing affordability.
Suffolk Building Society sets its interest coverage ratio (ICR) at 125% for basic-rate taxpayers and 145% for higher- and additional-rate taxpayers. Under the new criteria, the lender can use surplus personal income to cover a rental income shortfall, provided the rental income meets a minimum ICR of 125% at the product rate.
Applications can include a maximum of two applicants. At least one applicant must have an income of £40,000, or the application must have a combined income of £65,000. The change does not apply to the Society’s holiday let mortgages.
Charlotte Grimshaw, head of intermediaries at Suffolk Building Society (pictured), said: "The buy-to-let market has evolved significantly, and many landlords now have diverse income streams in addition to rental.
"Our new top slicing proposition recognises this reality by allowing surplus personal income to be considered in affordability assessments. This provides greater flexibility for landlords who may otherwise be constrained by rental stress testing alone, whilst maintaining our responsible approach to lending. Ultimately, it's about giving brokers more options and helping landlords continue to invest in the private rented sector at a time when demand for rental homes remains strong."
Revised affordability assessments for expats
The Society has also changed how it assesses residential mortgage applications from UK nationals living in seven selected countries and territories where they do not pay tax.
Previously, affordability calculations treated these applicants as UK taxpayers. The revised approach takes account of the tax arrangements in their country of residence, recognising that applicants who do not pay tax there may have more disposable income available to meet mortgage payments.
Grimshaw continued, “By taking into account the tax arrangements of individual countries when we're assessing affordability, we will be able to make a significant difference to expats' borrowing capacity. Many workers move to regions such as the UAE specifically because of the opportunity to earn tax-free, so it’s important that this is reflected in our affordability assessments.
“Expat remains an important lending area for us, and we’re keen to give brokers more options when supporting UK nationals living abroad. That’s why we continue to review our criteria and make improvements wherever possible.”
