Question 1

What is the Interest Coverage Ratio (ICR) and why do BTL lenders use it?

Accepted Answer

ICR compares your expected rental income to the interest cost of the mortgage at a deliberately cautious "stressed" rate, expressed as a percentage. Lenders use it instead of income multiples because a buy-to-let mortgage is repaid from rental income rather than your salary. A higher ICR requirement means the rent has to cover the stressed interest by a wider margin, giving the lender more confidence the loan will keep being paid if rates rise or the property sits empty for a period.

Question 2

Why is the ICR threshold higher for higher-rate taxpayers?

Accepted Answer

Because higher-rate taxpayers receive Section 24 mortgage interest relief at a flat 20% (rising to 22% from April 2027) rather than at their marginal 40% or 45% rate, more of their rental profit ends up being taxed. That leaves less of the rental income available to cover the mortgage after tax, so lenders typically apply a tougher 145% ICR test to higher-rate taxpayers compared with 125% for basic-rate taxpayers.

Question 3

What is a "stress rate" and where does the figure come from?

Accepted Answer

Lenders don't test affordability against the actual pay rate on your mortgage. Instead they add a margin (commonly around 2 percentage points) to the pay rate, and apply a minimum floor (commonly around 5.5%), then use whichever is higher as the "stress rate". This protects against the possibility that rates rise during the mortgage term and the rental income would no longer comfortably cover the higher payments.

Question 4

Do all lenders use the same ICR and stress rate rules?

Accepted Answer

No - this varies considerably between lenders, and some specialist lenders use entirely different approaches, such as top-slicing (allowing other personal income to support the application) or product-specific stress tests linked to the mortgage's initial fixed-rate period. The figures here use the standard, widely-quoted thresholds as a planning guide. A specialist BTL mortgage broker can tell you which lenders might assess your specific situation more favourably.

Question 5

Does the loan-to-value (LTV) ratio affect how much I can borrow?

Accepted Answer

LTV determines the maximum loan a lender will offer relative to the property's value, but it doesn't override the ICR test - both have to be satisfied. In practice, the loan you can actually secure is the lower of (a) the maximum the property value and your deposit allow at your chosen LTV, and (b) the maximum the rental income supports under the lender's ICR and stress rate rules. This calculator shows you both so you can see which one is the binding constraint for your scenario.

Buy-to-Let Mortgage Affordability Calculator

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Buy-to-Let Mortgage Affordability Calculator

Your results

Frequently asked questions

What is the Interest Coverage Ratio (ICR) and why do BTL lenders use it?−

Why is the ICR threshold higher for higher-rate taxpayers?+

What is a "stress rate" and where does the figure come from?+

Do all lenders use the same ICR and stress rate rules?+

Does the loan-to-value (LTV) ratio affect how much I can borrow?+

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