Why it matters
What Interest Coverage Ratio (ICR) means for a landlord
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
How it plays out
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.
Common mistakes
Where landlords go wrong
- 01Assuming the pay rate is used, lenders stress at a higher notional rate.
- 02Forgetting that higher-rate taxpayers face the tougher 145% test and borrow less.
- 03Not re-checking ICR before a remortgage, when a higher rate can shrink the loan.
What to do
A short checklist
- 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.
Sources
Checked against these sources on 16 September 2026. A guide to the rules in England, not legal advice: for a dispute or a possession claim, speak to a solicitor.
