Buy-to-Let Interest Cover Ratio (ICR): Worked Example for 2026/27
How lenders calculate the interest cover ratio (ICR) on buy-to-let mortgages in 2026/27, with a full worked example showing how much rent you need for a given loan size.
Why ICR exists
Buy-to-let mortgages are underwritten primarily against the property's rental income, not the landlord's personal salary. The interest cover ratio (ICR) — sometimes called the rental cover ratio or stress test — is the mechanism lenders use to check that the expected rent comfortably covers the mortgage interest, with enough margin to absorb future rate rises, void periods, and maintenance costs.
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The formula lenders apply is broadly:
Minimum required monthly rent = (Loan amount × Stress rate ÷ 12) × ICR percentage
Where the stress rate is a notional interest rate set by the lender (often 5.5%-8%, sometimes lower for five-year-plus fixes), and the ICR percentage is typically 125% for basic-rate taxpayers and limited companies, or 145% for higher/additional-rate individual taxpayers.
Worked example: £180,000 loan, basic-rate taxpayer
Loan amount: £180,000 Lender's stress rate: 6.5% Notional annual interest: £180,000 × 6.5% = £11,700 Notional monthly interest: £11,700 ÷ 12 = £975 ICR requirement: 125% Minimum required monthly rent: £975 × 125% = £1,218.75
If the property achieves £1,300/month rent, it comfortably clears the £1,218.75 threshold and the loan is approved at £180,000.
Worked example: same property, higher-rate taxpayer
Loan amount: £180,000 Notional monthly interest: £975 (unchanged) ICR requirement: 145% (higher-rate individual) Minimum required monthly rent: £975 × 145% = £1,413.75
The same £1,300/month rent now falls short of the £1,413.75 requirement. The lender would reduce the maximum loan until the ratio is met — working backwards, the maximum loan supportable by £1,300/month rent at 145% ICR and 6.5% stress rate is roughly £165,500, meaning the higher-rate taxpayer needs a bigger deposit to buy the same property at the same price.
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Because limited company landlords still receive full corporation tax relief on mortgage interest (unaffected by Section 24), many lenders apply the lower 125% threshold regardless of the director's personal income tax band. Using the same £180,000 loan and £975 monthly interest:
Minimum required monthly rent at 125%: £1,218.75 — the same figure as the basic-rate individual example, even if the director who owns the company is a higher-rate taxpayer personally. This is one of the reasons portfolio landlords who are higher-rate taxpayers often find limited company borrowing supports a larger loan on the same rental income than borrowing personally.
Practical ways to pass the ICR test
- Increase your deposit — reducing the loan amount directly reduces the interest figure being tested, the single most reliable fix.
- Target higher-yielding properties — areas or property types with a stronger rent-to-price ratio pass ICR more easily at a given loan size.
- Consider a five-year-plus fixed rate — some lenders apply a lower stress rate to longer fixes, since the rate is locked for longer, which can materially improve the maximum loan available.
- Compare lenders — ICR thresholds and stress rates vary meaningfully between lenders, so a property that fails one lender's test can pass with another that uses a lower stress rate or the 125% threshold.
The bottom line
ICR is the gatekeeper for how much a buy-to-let lender will actually advance, independent of how much you might be able to afford personally. Running the calculation before making an offer — using your likely deposit, the property's realistic achievable rent, and your tax status — avoids the disappointment of agreeing a purchase price the mortgage won't actually support.
Frequently asked questions
What is the interest cover ratio (ICR) on a buy-to-let mortgage?
ICR, also called the rental cover ratio, is the percentage by which a property's expected monthly rent must exceed the mortgage interest payment for a lender to approve the loan. Most lenders require rent to cover between 125% and 145% of the monthly interest payment, calculated at a stress-tested notional rate rather than the actual product rate.
Why do lenders stress-test the interest rate rather than use the actual rate?
Stress-testing at a higher notional rate (often 5.5%-8% depending on the lender and whether the deal is fixed for five years or more) builds in a buffer against future rate rises, ensuring the rent would still cover the mortgage interest even if rates increased significantly after completion.
Does the ICR requirement change for higher-rate taxpayers?
Yes. Because higher and additional-rate taxpayers no longer get full tax relief on mortgage interest (since Section 24 changes), many lenders apply a higher ICR threshold — often 145% instead of 125% — to individual landlord applicants who pay tax above the basic rate, to compensate for their higher effective borrowing cost after tax.
Does buying through a limited company change the ICR calculation?
Often yes — many lenders apply a lower ICR threshold (commonly 125%) to limited company buy-to-let applications regardless of the director's personal tax rate, because the company itself still gets full corporation tax relief on mortgage interest, unlike individual higher-rate landlords.
What happens if my property doesn't meet the ICR requirement?
The lender will reduce the maximum loan they'll offer until the rent-to-interest ratio meets their threshold, meaning you'd need a larger deposit to buy the same property, or you'd need to find a property with a higher achievable rent relative to its price.
How is the notional stress rate for ICR set in 2026/27?
Most lenders use either a fixed floor (e.g. 5.5%) or the product's pay rate plus a margin, whichever is higher, with a lower stress rate sometimes applied to mortgages fixed for five years or longer, since the lender has more certainty over the rate during that period.
Can I improve my ICR pass rate without changing the property?
A larger deposit reduces the loan size and therefore the monthly interest being tested, which directly improves the ICR calculation — this is the main lever available to a buyer facing an ICR shortfall on a specific property.
Does ICR apply to residential mortgages too?
No — ICR is specific to buy-to-let (and some commercial) lending, where the loan is assessed against the property's rental income rather than the borrower's personal income, which is the basis for a residential affordability assessment.
Is a 145% ICR the same everywhere in the UK?
No — some lenders apply different thresholds for houses in multiple occupation (HMOs), holiday lets, or properties in lower-yield areas of the country, and Scotland and Northern Ireland lenders can have their own variations, so it's always worth checking the specific lender's criteria for the property type.
Do lenders use gross or net rent for the ICR calculation?
Gross monthly rent, before deducting letting agent fees, insurance, or maintenance costs — the ICR test is purely a ratio between the headline rent and the stressed mortgage interest payment, not a full profit-and-loss assessment.
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Related reading
Buy-to-Let Mortgage for HMO Property: 2026/27 Guide
How HMO mortgages differ from standard buy-to-let lending in the UK for 2026/27 — licensing requirements, ICR rules, deposit expectations, and a worked example.
Buy-to-Let Landlord Summer Checklist 2026: 5 Financial Tasks for July–August
Five essential financial tasks for UK landlords in July and August 2026 — from the Self Assessment payment on account deadline to Section 24 planning, stress testing your mortgage, and whether a limited company structure makes sense.
Buy-to-Let: Common First-Time Landlord Mistakes in 2026/27
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