Interest Coverage Ratio for Buy to Let

Interest coverage ratio (ICR) is the test UK lenders use to check that a buy-to-let property's rent comfortably covers the mortgage interest, even if interest rates rise. It compares gross rent to interest calculated at a stressed rate, not the rate you will actually pay, and expressing the result as a percentage: rent as a proportion of that stressed interest figure.

This guide explains where the test comes from, the thresholds lenders typically apply, how personal and limited company borrowing differ, and how to run the calculation yourself.

Run the numbers in our free interest coverage ratio calculator.

What ICR is

ICR = (monthly rent / monthly stressed interest) x 100

Lenders do not simply check that rent exceeds your actual mortgage payment. They recalculate the interest using a higher, notional "stress rate" to see whether the property would still be affordable if rates rose after you completed. This protects both the lender and, in theory, the landlord from taking on a loan that only works at today's low rate.

The framework behind this comes from the Prudential Regulation Authority (PRA), the Bank of England body that supervises lenders. Its Supervisory Statement on buy-to-let underwriting, in force since 1 January 2017, sets out the expectation that lenders stress-test rental cover rather than relying on the pay rate alone. Individual lenders then set their own specific stress rates and minimum ICR thresholds within that framework, which is why the exact numbers vary between products.

If a property fails the ICR test at the loan amount you want, that does not always mean the purchase is dead. Common ways to close the gap include increasing the deposit (which reduces the loan and therefore the stressed interest), choosing a lender with a lower stress rate or a longer fixed term, or, where the lender allows it, using income from outside the property to top up a shortfall. What it does not mean is that the underlying rental yield is too low to be viable in cash terms; ICR is a lending affordability test, not a measure of whether the investment itself is a good one. A property can pass ICR easily and still be a mediocre investment, or fail ICR at a high loan amount while still being an excellent investment at a lower, more conservative level of gearing.

Stress rates

A stress rate is the interest rate a lender uses in the ICR calculation, regardless of the actual rate on the mortgage. Common patterns as of 2026:

• Around 5.5% is a widely used floor rate, particularly for five-year fixed products.
• Higher stress rates, sometimes 7% or more, are common on shorter fixes (two-year products), because there is less certainty about where rates will be when the deal ends.
• Some lenders use "the higher of the pay rate plus a margin, or a fixed floor rate", so a higher pay rate can itself push the stress rate up.

Because a five-year fix is stress-tested less harshly than a two-year fix in many cases, some landlords choose a longer fix specifically to improve the ICR calculation and unlock a larger loan, even if the headline rate is not the very cheapest on the market. If you want to see how the stress rate feeds into a maximum loan figure, our buy-to-let mortgage calculator guide walks through the full calculation with the ICR and stress rate combined.

Personal vs limited company

The ICR threshold that applies to you depends on how you are buying and, for personal ownership, your tax position:

This is why many portfolio landlords with mortgages, particularly higher-rate taxpayers, structure new purchases through a limited company: the lower 125% threshold can support a larger loan on the same rent. It is a decision with wider consequences beyond the mortgage though, including corporation tax, extra accountancy costs, and how you eventually extract profit from the company, so it is worth reading our guide on the rules that apply once you become a portfolio landlord before restructuring purely to improve ICR.

Some lenders also apply "top-slicing", where your personal income outside the property can be used to make up a shortfall in rental cover, usually only up to a certain loan-to-value and only for personal-name applications. Specialist lenders sometimes apply an even higher ICR, up to around 170%, for higher-rate taxpayers borrowing on complex property types such as HMOs, so it is always worth confirming the exact threshold with the specific lender rather than assuming the standard 125% or 145% figures apply universally.

Worked example

A property lets for £1,050 a month. The buyer is considering a £160,000 interest-only loan at a 4.8% pay rate, with the lender applying a 5.5% stress rate.

As a basic-rate taxpayer (125% ICR)

Stressed monthly interest: £160,000 x 5.5% / 12 = £733.33 Rent required: £733.33 x 1.25 = £916.67 Actual rent (£1,050) clears the requirement with room to spare.

As a higher-rate taxpayer (145% ICR)

Rent required: £733.33 x 1.45 = £1,063.33 Actual rent (£1,050) falls just short of the £1,063 required, so this loan amount would likely fail the test for a higher-rate taxpayer in personal name, even though the same loan passes comfortably for a basic-rate taxpayer.

As a limited company (125% ICR)

Using the same 125% threshold as the basic-rate example, the company structure would also pass at £916.67 required rent, giving the higher-rate taxpayer a route to the same loan amount by buying through an SPV instead of personally.

This example shows why the same property and the same loan can be approved for one buyer and declined for another, purely because of tax status and ownership structure, before the lender even considers your income or credit history.

Stress-test your portfolio

ICR calculations do not stop once you have completed on a mortgage. Rates rise, fixed periods end, and rents move, so a property that comfortably passed its stress test two years ago might be tighter today, particularly when a fixed rate ends and reverts to a lender's standard variable rate. It is worth recalculating ICR:

• Before you buy, to check the deal is viable
• Around six months before a fixed-rate deal ends, so you have time to shop around or adjust if a remortgage looks tight
• Whenever rent falls, a property sits empty, or costs rise materially

Our guide on remortgaging a buy-to-let property covers what to check before a fix ends, including how lenders reassess rental cover at that point. If you hold several mortgaged properties, Property HQ stress-tests rental cover across your whole portfolio automatically and flags any property or upcoming renewal that would fail a lender's typical ICR test, so you find out before a lender does.

Disclaimer

This guide is general information for UK landlords, not mortgage advice. Stress rates and ICR thresholds vary by lender and change over time - check current criteria with a mortgage broker or lender before making a borrowing decision.