A blended alternative to top slicing

    Colourful houses on Portobello Road

    As originally published in Financial Reporter.

    Top slicing has become a popular way for affluent buy to let landlords to invest in property where the yield does not support the rental coverage. But it’s not the only way for sophisticated investors to purchase high value buy to let property.

    Blended rates offer an alternative to top slicing, allowing investors the flexibility to service a portion of their loan, whilst rolling up the interest on the rest, enabling you to structure a solution that fits the required rental coverage. Here's an example of how it works.

    We recently worked with a broker to help a landlord client with a portfolio of three properties valued at £1,050,000.  The client wanted to consolidate his existing borrowing into one loan, with a view to selling his portfolio in three years.  He also wanted to ensure that the monthly repayments would be no more than £3,500 per month.

    The problem was that the rental income alone would not support the full servicing of the loan, so the client was struggling to achieve his required loan amount without having to subsidise it from his personal income.

    To provide a solution, we created a blended rate product for the client, with part of the interest serviced and the remainder of the loan on rolled-up interest.

    £597,127 was offered on a serviced basis with an interest rate of 6.99%.  The remaining £135,180 required was offered on a rolled-up basis at 8.59%.  The two rates were combined to give an overall blended interest rate of 7.29%.

    The result was that the client was able to achieve his desired loan amount and continue with his plan to sell the portfolio in the next three years, using the proceeds of sale to fund the rolled-up interest without having to use his personal income.

    So, if you have affluent clients who want to invest in high value, low yielding buy to let property, consider a blended alternative to traditional top-slicing.

     

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    Castle Trust Bank means Castle Trust Capital plc, a company incorporated in England and Wales with company number 07454474 and registered office at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.

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