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Stress testing increases complexity and need for top slicing in large BTL loans – Izard

by: Peter Izard, business development manager, Investec Private Bank
  • 15/11/2019
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Stress testing increases complexity and need for top slicing in large BTL loans – Izard
An interesting by-product of the continuing political uncertainty is that it has driven a spike in demand for remortgages on high-value rental properties, as some owners choose to sit tight until they have a clearer picture of the future.


The most recent London Super-Prime Lettings Insight from Knight Frank says the current hesitation in property sales has driven demand for super-prime lettings, with high-value properties proving particularly popular among US tenants whose spending power has increased as a result of the weak pound.  

This hesitation presents an opportunity for others, who could see benefits in buying investment property while the sales market is flat and demand for high-calibre rental accommodation is high. 

There are, however, complexities when it comes to sourcing a buy-to-let mortgage on a high-value property.  

Most buy-to-let lenders will insist that an assured shorthold tenancy (AST) is in place as a contractual obligation for any tenancy arrangements.  

However, the maximum value for an AST is £100,000 per year, which is the equivalent of less than £2,000 per week.  

To put this in context, at the time of writing the most expensive rental property listed on Rightmove in London was available for £88,000 per week, and there were more than 3,000 properties listed for more than £2,000 per week. 

So, there is a huge amount of appetite for property that is too expensive to be supported by an AST, even though there are a limited number of lenders that can consider this type of buy-to-let mortgage. 

The list of available lenders shrinks further when you start to look at loan sizes of more than £1.5m, and this is where working with a private bank can make a real difference. 


Where private banks step in

Private banks dominate the market for buy-to-let loan sizes above £1.5m because of their appetite for large loan sizes and tenancy agreements, but also because of the flexibility they can offer in underwriting a buy-to-let mortgage of this size. 

Once loan sizes start to increase, there is less chance that the mortgage will be covered by the stressed rental payments.

Consequently, large buy-to-let loans will almost always need to include an element of top slicing, where the client’s income is used to supplement the rental income in order to meet the required ICR. 

As with most high net worth (HNW) individuals, investors looking to buy high value buy-to-lets are likely to have a wide range of income sources, and private banks are well-equipped to analyse even the most complex of income structures. 

The growing demand for high-value rental property presents an opportunity for your clients and for you.


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