| Typical ICR | 125% (limited company or basic-rate taxpayer) to 145% (higher-rate taxpayer) |
|---|---|
| Minimum stress rate | 5.5% for products fixed for under five years (PRA) |
| Five-year fixes | Exempt from the PRA stress test; lenders may use a lower rate |
| Maximum LTV | Usually 75%, some lenders up to 80% |
| Portfolio landlord | Four or more mortgaged buy-to-let properties |
What is an interest coverage ratio (ICR)?
The ICR compares monthly rent with the monthly mortgage interest. An ICR of 125% means the rent must be at least 1.25 times the interest, calculated at the lender's stress rate. The margin is there to cover voids, repairs, agent fees and tax.
The formula is simple: maximum loan = (monthly rent ÷ ICR) × 12 ÷ stress rate. Lenders run it on the rent a valuer confirms, not the rent you hope to achieve. If the valuer's figure is lower, your maximum loan falls with it.
Your own salary matters much less than on a residential mortgage. Many lenders still ask for a minimum personal income, often around £25,000, but the rent does most of the work.
What stress rate do buy-to-let lenders use?
Most lenders test affordability at a rate higher than the one you will pay. Under the Prudential Regulation Authority's supervisory statement SS13/16, lenders should assume a minimum borrower rate of 5.5%, and allow for at least a two percentage point rise, unless the rate is fixed for five years or more.
That five-year exemption matters. On a five-year fixed rate, many lenders stress at the pay rate or a notional rate close to it. This often supports a larger loan than a two-year fix on the same property.
Each lender sets its own exact stress rate and ICR above these minimums. That is why two lenders can offer very different loan sizes on the same flat.
Why do higher-rate taxpayers face a 145% ICR?
Since Section 24 was phased in, individual landlords cannot deduct mortgage interest from rental income. Instead they get a tax credit at the basic rate. Higher and additional-rate taxpayers therefore pay more tax on the same rent, so many lenders ask for 145% cover rather than 125%.
The Government has announced separate property income tax rates of 22%, 42% and 47% from April 2027 in England, Wales and Northern Ireland, with finance cost relief given at 22%. Lenders may review their ICRs as this takes effect.
Limited companies pay corporation tax and can deduct interest as a business cost. Most lenders therefore apply 125% to company borrowers. See our guide to buying through a limited company before deciding. Take tax advice, as the right structure depends on your wider position.
How does an ICR calculation work in practice?
Here is a worked example for a flat let at £2,000 a month and valued at £500,000. The stress rates are illustrative, not product rates.
| Scenario | ICR | Stress rate | Max monthly interest | Max loan (ICR) |
|---|---|---|---|---|
| Limited company, two-year fix | 125% | 5.5% | £1,600 | £349,091 |
| Basic-rate individual, two-year fix | 125% | 5.5% | £1,600 | £349,091 |
| Higher-rate individual, two-year fix | 145% | 5.5% | £1,379 | £300,940 |
| Higher-rate individual, five-year fix | 145% | 4.5% (illustrative) | £1,379 | £367,816 |
At 75% loan to value, the maximum loan on a £500,000 property is £375,000. In every scenario above, the ICR is the tighter limit. The lender offers the lower of the two figures.
Try your own numbers with our buy-to-let calculator.
What is top-slicing?
Top-slicing lets some lenders use your surplus personal income to make up a rent shortfall. If the rent alone does not meet the ICR, the lender checks whether your spare earnings can cover the gap.
Lenders that offer it usually look at your full income, outgoings and existing commitments. It is common in high-value areas such as central London, where rental yields are often lower than elsewhere. Not every lender offers it, and the rules vary.
How are portfolio landlords assessed?
If you own four or more mortgaged buy-to-let properties, you are a portfolio landlord under PRA rules. Lenders look at the whole portfolio, not just the new property.
- A schedule of every property, its value, loan, rent and lender
- Overall gearing and rental cover across the portfolio
- Cash flow, tax and your plans for the business
- Recent accounts or SA302s showing rental profit
Some lenders cap total borrowing or require the portfolio to pass its own stress test. See portfolio landlord mortgages.
How can you improve buy-to-let affordability?
There are several legitimate levers. A larger deposit lowers the loan needed. A five-year fix may use a lower stress rate. A limited company may qualify at 125%. Top-slicing can help where rents are modest.
Higher-yield property types such as HMOs or multi-unit blocks can also support more borrowing, though they carry more management and licensing work.
Weigh the risks too. Most buy-to-let lending for investment is not regulated by the FCA. Rents can fall, voids happen, and the Renters' Rights Act has changed how tenancies work in England. Your property may be repossessed if you do not keep up repayments.
Sources
Checked October 2026. Rules and tax treatment can change, so confirm the current position before acting.
- Bank of England (PRA): SS13/16 Underwriting standards for buy-to-let mortgage contracts
- GOV.UK: Changes to tax rates for property, savings and dividend income
- GOV.UK: Stamp Duty Land Tax residential property rates
Frequently asked questions
What ICR do buy-to-let lenders use?
Most lenders use 125% for limited companies and basic-rate taxpayers, and 145% for higher and additional-rate taxpayers. Some use other figures for HMOs, holiday lets or short fixes. The ratio is applied at the lender's stress rate, not the rate you will actually pay.
Is the 5.5% stress rate still in place in 2026?
Yes. The PRA's SS13/16 still expects lenders to assume a minimum borrower rate of 5.5% where the rate is fixed for less than five years. Products fixed for five years or more are exempt, so lenders may assess them at a lower rate.
Can I use my salary to boost buy-to-let borrowing?
Sometimes. Lenders that offer top-slicing will use surplus personal income to cover a rent shortfall. They check your income, outgoings and other debts first. Many lenders do not offer it, so the choice of lender matters. It is more common with experienced landlords and higher earners.
Why is a limited company often assessed at 125%?
A company can deduct mortgage interest as a business expense before corporation tax. Individual landlords only get a basic-rate tax credit under Section 24. Because the company's tax position is usually better, lenders accept a lower margin of rental cover.
Which rent figure do lenders use?
Lenders use the market rent confirmed by their valuer. If a tenancy is already in place, they may also look at the actual rent. The lower figure is usually used. For HMOs, some lenders accept room-by-room rent. Short-let or holiday-let income is assessed under separate rules.
Are buy-to-let mortgages regulated?
Most buy-to-let mortgages taken for investment are not regulated by the FCA. Consumer buy-to-let, such as letting a home you inherited or used to live in, has some protections. An adviser should explain which applies to you. Unregulated lending does not carry the same complaint and compensation protections.
Can a first-time landlord get a buy-to-let mortgage?
Yes, many lenders accept first-time landlords, though some prefer you to own your own home first. Expect closer checks on personal income and sometimes a lower maximum loan to value. HMOs and multi-unit blocks are usually harder without letting experience.
Does a five-year fix really increase how much I can borrow?
Often, yes. Five-year fixed rates are exempt from the PRA minimum stress rate, so lenders can test affordability at a lower figure. The result can be a noticeably larger maximum loan, but you are tied in for longer and early repayment charges usually apply.
Important: This guide is general information, not personal advice. Rules, rates and lender criteria change; speak to an adviser about your circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.