Buy-to-Let Mortgage ICR Calculator United Kingdom

What the buy-to-let ICR calculator does

The calculator works out the interest coverage ratio a lender applies to a buy-to-let mortgage. It compares the rent with the interest the mortgage would cost at a stressed rate, tells you whether that ratio meets the lender’s requirement and shows the largest loan the rent could support.

A buy-to-let lender does not lend against your salary the way a residential lender does; it lends against the property’s ability to pay for itself, and the ICR is how it measures that. Knowing your ratio before you apply saves wasted applications and tells you quickly whether a deal works.

How the interest coverage ratio works

The lender divides your annual rent by the annual mortgage interest at a stress rate and expresses the answer as a percentage. If the rent equals the stressed interest, the ICR is 100%. If the rent is one and a half times the stressed interest, the ICR is 150%.

The stress rate is set above the rate you would actually pay, to check that the rent would still cover the mortgage if rates rose. The figure varies by lender and by type of mortgage.

The requirement is the minimum ICR the lender will accept. Meet it and the rent is judged sufficient; fall short and the lender offers a smaller loan or declines. Because the test uses the stressed rate, a mortgage that looks affordable at today’s payments can still fail.

For example, £1,200 a month of rent is £14,400 a year. A £200,000 loan at a 5.5% stress rate means £11,000 of stressed interest, so the ICR is about 130.9%. That passes a 125% test but fails a 145% one, where the rent would support a loan of about £180,564.

Why 125% and 145% both appear

The two common thresholds reflect tax. A basic rate taxpayer, or a purchase held in a limited company, is often tested at 125% because the rental profit is taxed more lightly. A higher rate taxpayer holding the property personally is usually tested at 145% to allow for the extra tax on the rent.

So two landlords buying the same property with the same mortgage can be offered different maximum loans. The rent is the same, but the requirement applied to it differs, and that flows straight through to how much each can borrow. Enter the requirement that matches your circumstances.

What you need to enter

• The gross monthly rent, before any costs or tax.
• The mortgage balance you want to borrow.
• The stress rate the lender applies, if you know it, or a prudent estimate.
• The ICR requirement that fits your tax position and the lender’s policy.

Use gross rent, because the lender’s test is defined on gross rent against stressed interest. Your actual return will be lower once tax and running costs come out, but that is a separate question.

Reading your result

The main figure is your actual ICR; compare it with the requirement. The pass indicator shows one when your ICR meets or beats the requirement and zero when it falls short.

The maximum supportable loan is often the most useful output: the largest loan the current rent supports at the requirement and stress rate you entered. To borrow more than that, you need a higher rent, a lower stress rate or a lender with a lower requirement.

Improving a failing ratio

A higher rent, where the market allows, lifts the ratio directly. A smaller loan, perhaps with a larger deposit, cuts the stressed interest. A lender with a lower stress rate or requirement can close the gap, which is why comparing lenders matters for buy-to-let.

Some lenders allow top-slicing, where surplus personal income supports a loan the rent alone would not cover. That is outside this test, but worth knowing about if a property just misses the threshold.

Try a range of stress rates rather than one figure. Stress assumptions move with the market and the product: a five-year fix is often stressed more gently than a two-year deal, because the fixed period reduces the lender’s rate risk. Running the calculator a little above and below your expected stress rate shows how much headroom a deal has and whether a small change in the lender’s assumptions would turn a pass into a fail.

When to use this tool

• To check whether a property’s rent covers a planned buy-to-let mortgage.
• To find the maximum loan a given rent will support.
• To compare lenders with different stress rates and ICR requirements.
• To sanity-check a deal before paying for an application or valuation.

Run it again whenever the rent, the loan or the lender’s assumptions change.

This is general information only and not financial advice.

About This Buy to Let ICR Calculator

Use this buy to let ICR calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.