ICR (Interest Cover Ratio)
The ratio of rental income to mortgage interest payments, used by lenders to assess whether a property generates enough rent to cover the mortgage.
The Interest Cover Ratio (ICR) is a key metric used by BTL mortgage lenders to determine whether a property's rental income is sufficient to cover the mortgage interest payments.
ICR = Annual Rental Income ÷ Annual Mortgage Interest
Lender Requirements
Most lenders require an ICR of at least 125% at a stressed rate (typically 5.5% or the pay rate + 2%, whichever is higher). This means the rent must be at least 1.25 times the interest cost.
For higher-rate taxpayers, lenders often require 145% ICR to account for Section 24 tax impacts.
Example
- Annual rent: £12,000
- Mortgage interest at stressed rate: £8,000
- ICR = £12,000 ÷ £8,000 = 150% ✓ (passes at 125%)
If the stressed interest were £10,000, the ICR would drop to 120% — failing the 125% threshold.
Why ICR Matters to Investors
Even if a lender doesn't require you to meet ICR thresholds (e.g., on a remortgage with a different lender), the ICR is a useful personal stress test. A property with an ICR below 125% at current rates is dangerously close to negative cashflow — and any rate increase could tip it into a loss.