Interest Coverage Ratio (ICR)
Quick answer
The rental stress test buy-to-let lenders use to decide how much they will lend. It measures whether the rent covers the mortgage interest by a required margin — commonly 125% for basic-rate borrowers and 145% for higher-rate borrowers — tested at a notional stressed interest rate rather than the actual pay rate.
At a glance
- Typical margin
- 125% (basic) to 145% (higher rate)
- Tested at
- A stressed notional rate, not the pay rate
Full guide
Read the complete landlord guide on Interest Coverage Ratio (ICR)
Deadlines, fines and step-by-step compliance in our in-depth resource.
Open full guideWhy Interest Coverage Ratio (ICR) matters for landlords
The ICR is why two landlords buying the same property can be offered very different loan sizes: the higher-rate taxpayer must clear a tougher 145% test, so borrows less. Because the test uses a stressed rate above the actual rate, rising rates squeeze borrowing capacity quickly — a property that passed comfortably in 2021 can fail today. Knowing the ICR before you offer on a property tells you the realistic maximum loan, and therefore the deposit you actually need.
Worked example
Raj wants a 75% buy-to-let mortgage on a £200,000 flat — a £150,000 loan. The lender stress-tests at 5.5% and, because Raj is a higher-rate taxpayer, requires the rent to cover 145% of the interest. Interest at 5.5% on £150,000 is £8,250 a year; multiplied by 1.45 that is £11,963 — so the flat must let for at least about £997 a month to pass. It only achieves £900, so the lender caps his loan below 75% and Raj must find a larger deposit. A basic-rate borrower, tested at 125%, would have passed comfortably on the same £900 rent.
Illustrative scenario based on real UK landlord casework patterns. Names and addresses are fictitious.
Common Interest Coverage Ratio (ICR) mistakes UK landlords make
- Assuming the pay rate is used — lenders stress at a higher notional rate.
- Forgetting that higher-rate taxpayers face the tougher 145% test and borrow less.
- Not re-checking ICR before a remortgage, when a higher rate can shrink the loan.
What to do this week
- Estimate the achievable rent and run it against a 125%/145% ICR at a ~5.5% stress rate.
- Use the result to set your realistic maximum loan and required deposit before offering.
- Re-run the ICR well ahead of any remortgage to spot a shortfall early.
Tracked inside LetCompliance
Stop tracking Interest Coverage Ratio (ICR) in spreadsheets
LetCompliance scores every property 0–100 across Gas Safety, EICR, EPC, deposits, Right to Rent and Fire Risk — with deadline reminders 90/30/14/7/1 days out and a court-ready PDF you can export in one click. Built for UK landlords + letting agents.
Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
Interest-Only Mortgage
A mortgage where the monthly payment covers only the interest, leaving the original capital to be repaid at the end of the term. Most buy-to-let mortgages are interest-only because it maximises monthly cashflow and, historically, the tax treatment of interest. The capital must still be repaid eventually — usually by selling or remortgaging the property.
Buy-to-Let Mortgage
A mortgage designed for a property bought to rent out rather than live in. Lending is assessed mainly on the rent the property will produce, not just the borrower’s salary, and most are interest-only. Deposits are larger than for a residential mortgage — typically at least 20–25% — and the interest is relieved only as a 20% tax credit under Section 24.
Loan to Value (LTV)
The size of a mortgage expressed as a percentage of the property’s value. A £150,000 loan on a £200,000 property is 75% LTV. Buy-to-let lending is usually capped around 75–80% LTV, and lower LTVs unlock better interest rates.
Allowable Expenses
The day-to-day running costs a landlord can deduct from rental income before tax. They must be wholly and exclusively for the letting — letting agent fees, repairs and maintenance (not improvements), landlord insurance, ground rent and service charges, accountancy, and utility or council tax you pay. Mortgage interest is handled separately as a 20% tax credit under Section 24, not as an expense.
BTL (Buy-to-Let)
A mortgage product and business model where a property is purchased specifically to rent out. Buy-to-let landlords are subject to Section 24 of the Finance Act 2015, which replaced mortgage interest relief with a 20% tax credit. Stamp duty is higher on a second property.
Furnished Holiday Let (FHL)
A short-let property meeting the FHL availability and letting tests (210 days available, 105 days actually let, etc.). Treated as a trade for tax purposes until 5 April 2025, with full mortgage interest deduction, capital allowances on furniture and fittings, and Business Asset Disposal Relief on sale. From 6 April 2025 the FHL regime was abolished by the Finance Act 2024: existing FHLs fall under standard property income rules and Section 24 mortgage interest restriction applies in full.