Understanding ICR: How Lenders Calculate Buy-to-Let Mortgage Affordability
RealYield Team
Property Analyst
Every buy-to-let mortgage application comes down to one question: does the rent cover the debt? The number lenders use to answer that question is the Interest Cover Ratio. Get your head around it and you will know exactly what any lender will think of a deal before you apply.
What ICR Actually Means
ICR stands for Interest Cover Ratio. It measures how many times over the rental income covers the mortgage interest.
The formula is:
ICR = (Annual rental income ÷ Annual mortgage interest) × 100
An ICR of 100% means the rent exactly covers the interest. An ICR of 125% means the rent is 25% above the interest. Lenders set minimum thresholds that a property must clear before they will approve the mortgage. Fall short and the application fails, even if you can comfortably afford the payments from your other income.
This is a rental property test, not a personal affordability test. A landlord earning £100,000 a year from their day job will still be declined if the property itself does not generate sufficient rental income relative to the mortgage.
Why Lenders Use a Stress Rate, Not the Actual Rate
Here is where most landlords are caught out. Lenders do not calculate ICR using the actual mortgage rate you will be charged. They use a higher hypothetical rate called the stress rate.
The stress rate builds in a buffer. Lenders are testing whether the property could still service its debt if rates rise significantly. In 2026, most UK lenders apply a stress rate of 5.5%, regardless of whether the actual product rate is lower.
That means if you are fixing at 4.2%, the ICR calculation runs at 5.5% regardless. The gap between what you will actually pay and what the lender tests you at can make a real difference to whether a deal works.
Some lenders use a lower stress rate. Products fixed for five years or more may attract 5.0% or even the pay rate in certain cases. Criteria vary by lender and product type, which is why the same property can pass with one lender and fail with another.
The Three ICR Thresholds
ICR requirements differ depending on your tax status, because tax directly affects how much of the rental income you will actually keep after HMRC takes its share.
| Borrower type | Standard ICR requirement |
|---|---|
| Basic-rate taxpayer (personal name) | 125% |
| Higher-rate taxpayer (personal name) | 145% |
| Additional-rate taxpayer (personal name) | ~167% |
| Limited company (SPV) | 125% |
The difference reflects Section 24 of the Finance (No. 2) Act 2015. Personal-name landlords can no longer deduct mortgage interest as a property expense. Instead, they receive a 20% basic-rate tax credit on that interest. For basic-rate taxpayers the net effect is roughly equivalent to the old system. For higher and additional-rate taxpayers, who pay 40% or 45% on rental income but only receive a 20% credit, the tax drag is significant.
Frequently Asked Questions
What is the Interest Cover Ratio (ICR) in buy-to-let?
ICR is the ratio of annual rental income to annual mortgage interest, expressed as a percentage. Lenders use it to check that a property's rental income provides a sufficient buffer above the mortgage cost. Most require a minimum of 125% for basic-rate taxpayers and 145% for higher-rate taxpayers.
What stress rate do BTL lenders use for ICR calculations?
Most lenders use a stress rate of 5.5% in 2026, regardless of the actual product rate. Some use the pay rate plus a margin, and certain five-year fixed products may attract a lower stress rate. Criteria vary by lender.
Why do higher-rate taxpayers need a higher ICR?
Section 24 restricted mortgage interest relief to the basic rate for personal-name landlords. Higher-rate taxpayers pay more tax on rental income, leaving less cash to service the debt. Lenders account for this by requiring 145% ICR rather than 125%.
Does ICR apply across my whole portfolio?
Once you hold four or more mortgaged buy-to-let properties, most lenders assess ICR at portfolio level under PRA Supervisory Statement SS13/16. Every property is included, not just the one you are applying for.
Can a limited company get a better ICR requirement?
Yes. Limited company (SPV) borrowers typically face a 125% ICR requirement rather than 145%, because corporation tax and full mortgage interest deductibility give the lender more confidence in the borrower's cash position.
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