A buy-to-let lender checks that the expected rent covers the mortgage interest by a safety margin, at an interest rate higher than the one you will actually pay. The Bank of England’s Prudential Regulation Authority describes 125% as the industry minimum ICR, and expects lenders to stress the rate by at least 2 percentage points, with a floor of 5.5% unless the rate is fixed for five years or more.
What the interest coverage ratio is
The ICR is the monthly rent divided by the monthly interest payment, calculated at a stressed rate. Under the PRA’s supervisory statement SS13/16, the rent must be confirmed by an independent valuer, an automated valuation model or an existing tenancy, and lenders must consider letting costs such as agent fees, repairs, voids, insurance and safety certificates.
Lenders must also allow for tax, including the restriction on mortgage interest relief. They may simply assume every borrower pays higher rate tax, which is one reason some apply a higher ICR than 125%.
Where your rental cover sits
The stress rate
For loans where the rate can change within five years, lenders look at likely rates over at least five years, including market expectations and a rise of at least 2 percentage points. Even if that gives a lower figure, they should assume at least 5.5%. Where the rate is fixed for five years or more, that test does not have to be applied in the same way, which is why five-year fixes can support larger loans. Lenders should still consider the risk of refinancing when the fix ends.
A worked example
Take an interest-only loan of £150,000 tested at 5.5%. Annual interest is £8,250, or £687.50 a month. At an ICR of 125%, the rent must be at least £859.38 a month. If the property only lets for £800, the lender would cut the loan or ask you to add personal income. Our guide to deposits and loan-to-value explains how a larger deposit closes the gap.
Worked example: £150,000 interest-only
- Set the stress rateAt least 5.5%, or pay rate plus 2 points if higher.
- Work out yearly interest£150,000 × 5.5% = £8,250.
- Convert to monthly£8,250 ÷ 12 = £687.50 a month.
- Apply the ICR£687.50 × 125% = £859.38 minimum rent.
- Compare with real rentBelow that figure, the loan is reduced.
Personal income top-ups and portfolio landlords
Lenders may let personal income supplement the rent, but then they must run a full affordability assessment of your income, credit commitments and living costs. If they assume rents will rise, the assumption should not exceed 2% a year. Borrowers with four or more mortgaged buy-to-let properties count as portfolio landlords and face a closer look at the whole portfolio.
Remortgaging without extra borrowing is treated differently, because the PRA expectations do not apply where the loan does not increase. Costs beyond the mortgage still matter for your margin, from the stamp duty surcharge to safety checks and EPC upgrades. A stressed test that you only just pass leaves little room for a void month or a repair bill. This is general information, not financial advice: speak to an FCA-authorised mortgage adviser about your own circumstances.
Frequently asked questions
Why do some lenders ask for 145% rental cover?
The PRA describes 125% as the industry minimum and says factors such as tax may justify higher thresholds. Lenders that assume higher rate tax often set a higher ICR.
Does a five-year fix really help?
Usually, yes. The PRA test of likely rate rises over five years applies to rates that can change within that time; for fixes of five years or more lenders can test at a lower rate, while still weighing refinancing risk.
Can my salary make up for low rent?
Some lenders allow it. They must then assess your income, credit commitments and essential spending in detail, as set out in SS13/16.
Divide the rent by the interest at a stressed rate of at least 5.5%: below the lender’s ICR, often 125% or more, the loan will be reduced.
Sources
- Supervisory Statement 13/16: Underwriting standards for buy-to-let mortgage contracts — Bank of England, Prudential Regulation Authority (September 2016): ICR, stress rate, portfolio landlords.
- Underwriting standards for buy-to-let mortgage contracts (SS13/16) — Bank of England: version history, including a version effective 1 January 2027.
- The interest rate (Bank Rate) — Bank of England: Bank Rate 3.75%, next decision 5 November 2026.
- PERG 4.10B Regulation of buy to let lending — FCA Handbook: buy-to-let credit agreements and the consumer buy-to-let regime.
