For buy-to-let borrowers, the interest coverage ratio (ICR) often decides how much a lender will advance, sometimes more than the property’s value does. Understanding how the test works helps landlords choose the right product and avoid applying for loans the rent cannot support.
How the ICR test works
Most buy-to-let lenders require the expected monthly rent to exceed the mortgage interest by a set margin. Lenders commonly use ICR thresholds in the region of 125% for basic-rate taxpayers and 145% for higher-rate taxpayers, though thresholds differ between lenders and products. The interest is calculated at a rate set by the lender, which for shorter-term or variable products may be a stressed rate above the actual pay rate, while for fixes of five years or more many lenders test at the pay rate itself.
A worked illustration
Suppose a property is expected to let at £1,500 a month and the lender applies a 125% ICR at a 5.5% test rate. Maximum loan = (annual rent ÷ 1.25) ÷ 5.5%, which is (£18,000 ÷ 1.25) ÷ 0.055 = roughly £261,800. At 145%, the same property supports roughly £225,700. The figures are illustrative only and individual lender criteria will differ.
Limited company borrowers
Limited company applicants are often assessed at the lower ICR threshold because corporation tax applies rather than personal income tax, though lenders will usually ask for personal guarantees from directors. The tax and structuring implications are significant and you should take advice from a qualified accountant; our guide to personal vs limited company buy-to-let mortgages explains the lending side.
What can improve borrowing capacity
- Longer fixed rates. A five-year fix tested at the pay rate may support a larger loan than a two-year fix tested at a stress rate.
- Top-slicing. Some lenders allow other income to supplement rent where ICR falls short.
- Rent evidence. A realistic, evidenced rent from a valuer or letting agent supports the figure used.
- EPC and compliance. Energy efficiency and legal compliance increasingly influence lender appetite; see our guide to EPC C and retrofit finance for landlords.
The wider landlord environment
Bank Rate was held at 3.75% in September 2026, but buy-to-let fixed pricing depends on lender funding costs. Regulatory change also matters: our article on the Renters’ Rights Act and buy-to-let lending covers how lenders are responding.
Find the right product
Explore our buy-to-let mortgage service, see the Buy-to-Let & Portfolio Landlord Hub for portfolio guidance, or contact Giles Finance. We arrange lending for landlords across the Dagenham, Rainham and Willenhall areas – see our Willenhall page or all areas we cover.
Most buy-to-let lending is not regulated by the FCA, although consumer buy-to-let mortgages are. Your property may be repossessed if you do not keep up repayments on your mortgage. Nothing here is tax advice; speak to a qualified tax adviser or accountant.
Giles Finance is a trading style of Giles Finance & Consultancy Services, authorised and regulated by the Financial Conduct Authority (FRN 726857).