BTL stress test

5.5% or the product rate plus 2%, whichever is higher, based on PRA Supervisory Statement SS13/16. For 5-year-plus fixed-rate products lenders may apply a lower stress (often 5.0% or the product rate) on the basis that interest-rate risk is removed over the fixed period.

125% applies to basic-rate taxpayers and Limited Company borrowers (because Ltd interest is fully tax-deductible, so each £ of interest costs less in post-tax terms). 145% applies to higher- and additional-rate taxpayers borrowing in personal name (because Section 24 restricts mortgage-interest relief to 20% basic-rate, so each £ of interest costs more in post-tax terms).

With some lenders, yes. Top-slicing uses your personal income to cover a shortfall in the rental cover test. Lenders that offer it want to see surplus income after your own commitments and set their own minimums, and many mainstream lenders do not offer it. A mortgage broker can tell you which lenders will consider it for your case.

PRA SS13/16 lets lenders apply a lower stress rate on 5-year-plus fixes because interest-rate risk over the fixed period is mitigated. Many lenders apply 5.5% stress on 2-year fixes but 5.0% (or the product rate) on 5-year fixes. The 0.5% gap is enough to push borderline deals across the threshold.

Often, yes. Because a company can deduct mortgage interest in full, many lenders apply a lower rental cover ratio to limited company borrowers than to higher-rate taxpayers borrowing in their own names. Company buy-to-let products can carry different rates and fees, so compare the full cost, and run both structures past an accountant, before choosing.

Yes if you have four or more mortgaged buy-to-let properties at the time of application. PRA SS13/16 then requires the lender to assess the whole portfolio (cash flow, leverage, geographic concentration), not just the property being purchased. Expect to provide a portfolio business plan, a full property schedule, three years of SA302s and a portfolio-level stress test at a higher rate.

There are four usual routes. Put down a bigger deposit, since a smaller loan needs less rent to pass. Choose a fixed rate of five years or more, which some lenders test at a lower rate. For a higher-rate taxpayer, compare buying through a limited company, where lenders usually apply a lower cover ratio. Or choose a property with more rent for its price. The calculator shows the size of the gap so you can judge each one.

At a 5.5% stress rate a £200,000 loan carries £11,000 of stressed interest a year. A higher-rate taxpayer in personal name (145% ICR) needs rent to cover £11,000 × 1.45 = £15,950 a year, about £1,329 a month. A basic-rate taxpayer or Limited Company borrower (125% ICR) needs £11,000 × 1.25 = £13,750 a year, about £1,146 a month. Enter your own loan and stress rate above for the exact figure.

Most BTL lenders cap the loan at 75% of the property value, so you need a deposit of at least 25%. The lowest rates and the easiest stress-test passes usually sit at 60–65% LTV (a 35–40% deposit), because a smaller loan needs less rent to clear the ICR test. Putting down a larger deposit is often the quickest way to turn a failing stress test into a pass.

Indirectly. Lenders stress at a floor of about 5.5%, or the product rate plus 2%, whichever is higher. When the base rate, and therefore product rates, is high, the “product rate plus 2%” figure bites and the test is harder to pass; when rates fall, the 5.5% floor tends to apply instead. The stress rate is deliberately set above the pay rate so the deal still works if rates rise during the mortgage.