This article is for general information only and does not constitute financial advice.
BTL mortgage applications are assessed on rental income, not your salary. The lender's question is whether the expected rent covers the mortgage payment by a sufficient margin, tested at a stress interest rate higher than the actual product rate. This is the Interest Coverage Ratio (ICR), and it is the single most important calculation in BTL finance.
If the property passes the stress test, the application proceeds. If it does not, the lender declines. Understanding the maths before you make an offer saves time and money.
The Interest Coverage Ratio
The ICR formula is: expected annual rental income divided by annual mortgage interest at the stress-test rate.
Most lenders require an ICR of 125% for basic-rate (20%) taxpayers and 145% for higher-rate (40%) taxpayers. The stress-test interest rate is typically 5.5%, though some lenders use the pay rate (actual mortgage rate) for five-year fixed products.
The higher ICR for higher-rate taxpayers reflects the impact of Section 24, which restricts mortgage interest relief to the basic rate. A higher-rate taxpayer keeps less of each pound of rental income after tax, so lenders require a larger margin.
Worked examples
Property A: £200,000, 75% LTV, basic-rate taxpayer
| Input | Value |
|---|---|
| Mortgage amount | £150,000 |
| Stress rate | 5.5% |
| Annual interest at stress rate | £8,250 |
| Required ICR | 125% |
| Minimum annual rent | £10,312 |
| Minimum monthly rent | £859 |
If the property achieves £900 per month (£10,800 per year), the ICR is 130%. It passes.
Property B: £250,000, 75% LTV, higher-rate taxpayer
| Input | Value |
|---|---|
| Mortgage amount | £187,500 |
| Stress rate | 5.5% |
| Annual interest at stress rate | £10,312 |
| Required ICR | 145% |
| Minimum annual rent | £14,952 |
| Minimum monthly rent | £1,246 |
A property in a lower-rent area achieving £1,100 per month would fail this test, even though the rent more than covers the actual mortgage payment at the product rate.
Factors that change the calculation
Five-year fix at pay rate. Some lenders stress-test five-year fixed products at the actual pay rate rather than a notional 5.5%. If the product rate is 4.2%, the stress-test amount drops, and the minimum rent drops with it. This is one reason five-year fixes are popular with BTL investors.
Limited company borrowing. Lenders assess SPV (limited company) applications differently. The ICR is typically 125% regardless of personal tax rate, because the company pays corporation tax, not income tax. The stress rate may also be lower for company applications.
Top-slicing. Some lenders allow your personal income to "top-slice" a shortfall in the rental ICR. If the property is £50 per month short of the required rent, and you earn £60,000, some lenders accept your surplus personal income as additional security.
Minimum personal income
Some BTL lenders require a minimum personal income (typically £25,000 per year) even though the mortgage is assessed on rental income. Others have no minimum. If your income is below £25,000, use a broker to find lenders without this requirement.
What to do if the numbers are tight
Increase the deposit to reduce the mortgage amount. A higher deposit means a lower mortgage, a lower stress-test figure, and a lower minimum rent requirement. Moving from 75% LTV to 70% LTV can make a marginal deal work.
Choose a five-year fix with a lender that stress-tests at pay rate.
Consider a limited company purchase if the higher-rate ICR is the constraint.
Use a specialist broker who has access to lenders with different criteria.
Sources
- Bank of England, "PRA supervisory statement SS13/16: underwriting standards for buy-to-let mortgage contracts". https://www.bankofengland.co.uk/prudential-regulation/publication/2016/underwriting-standards-for-buy-to-let-mortgage-contracts-ss [Accessed 6 May 2026]