Glossary
ICR: Interest cover ratio
Annual rent divided by annual mortgage interest at the lender's stress rate.
What it means
Interest cover ratio is how buy-to-let lenders decide how much they will lend. They take the annual rent and divide it by a year's interest at a stressed rate. Most want at least 125% for limited companies and basic-rate taxpayers and 145% for higher-rate taxpayers. If the rent doesn't cover the test, they lend less, whatever the property is worth.
Worked example
ExampleRent of £9,600 a year, a £90,000 interest-only loan, stress-tested at 7.5%.
- Stressed interest
- £90,000 × 7.5% = £6,750
- ICR
- £9,600 ÷ £6,750 = 142%
Passes a 125% test, fails a 145% test. A higher-rate taxpayer may need a smaller loan or a limited company.
Information, not advice. Example figures are fictional and for illustration only.