The test in one line
A buy to let lender wants the annual rent to be at least a set percentage of a stressed annual interest bill. Written out, the rule is: annual rent must be greater than or equal to loan times stress rate times ICR. Rearranged, it gives the number that matters, the maximum loan: annual rent divided by stress rate times ICR.
The typical numbers
Two inputs drive everything, and both vary by lender and borrower type.
| Borrower | Typical ICR | Typical stress rate |
|---|---|---|
| Limited company | 125 per cent | Pay rate on 5 year fixes, otherwise around pay rate plus 2 per cent or a floor near 5.5 per cent |
| Basic rate taxpayer, personal name | 125 per cent | Same basis |
| Higher rate taxpayer, personal name | 145 per cent | Same basis |
The higher personal ICR exists because a higher rate taxpayer in a personal name gets only a basic rate credit for mortgage interest, so more of the rent is taken by tax. The structure question this creates is covered in our guide to limited company versus personal name buy to let.
A full worked example
Take a property with an expected rent of £1,100 a month, which is £13,200 a year, tested at a stress rate of 5.5 per cent.
At 145 per cent, the higher rate personal test, the maximum loan is £13,200 divided by 0.055 times 1.45. That is £13,200 divided by 0.07975, which comes to about £165,517.
At 125 per cent, the usual limited company test, the maximum loan is £13,200 divided by 0.055 times 1.25. That is £13,200 divided by 0.06875, which comes to £192,000 exactly.
Same property, same rent, and the limited company structure supports around £26,500 more borrowing. Nothing about the property changed. Only the test did.
Which constraint actually binds
The ICR result always sits alongside the loan to value cap, typically 75 per cent. The lower of the two is the real maximum. Suppose the property above is valued at £240,000. The 75 per cent cap allows a loan of £180,000.
- Higher rate, personal name: the ICR allows about £165,517, the LTV cap allows £180,000. The ICR binds. The borrower needs a deposit of about £74,500, roughly 31 per cent, not the headline 25.
- Limited company: the ICR allows £192,000, the LTV cap allows £180,000. The LTV cap binds and the full 75 per cent loan is available with a £60,000 deposit.
This is why two investors can look at the same listing and reach different answers on whether it stacks up. How the deposit requirement moves when the ICR binds is covered in our guide to how much deposit you need for a buy to let, and you can run your own figures through our buy to let affordability calculator.
What moves the stress rate
Product choice changes the arithmetic more than most people expect. On five year fixed rates most lenders stress at the pay rate itself, sometimes with a small margin added. On the worked example above, a five year fix with a pay rate of 4.5 per cent stressed at that rate with a 145 per cent ICR gives £13,200 divided by 0.06525, about £202,300, comfortably clearing the £180,000 LTV cap that a 5.5 per cent stress left out of reach. On two year products the stress is typically the higher of pay rate plus 2 per cent or a floor around 5.5 per cent, which is why shorter fixes often support smaller loans. These figures are for illustration, since rates and lender policy move.
What else lenders look at
The ICR is the headline test but not the whole assessment. The rent figure itself comes from the valuer, not the applicant, and a valuer's rent below the estimate reworks the entire calculation late in the process. Some lenders apply top slicing, using surplus personal income to support a loan the rent alone would not, useful for lower yielding properties in expensive areas. And background portfolios are tested in aggregate for larger landlords. What usually decides marginal cases is the combination of product term, structure and a defensible rent figure, which is why the same case can fail at one lender and pass at another on the same day.
Related questions
What is a good ICR for a buy to let?
The ICR is a lender requirement rather than a score to aim for. Typical thresholds are 125 per cent for limited companies and basic rate taxpayers and 145 per cent for higher rate taxpayers in a personal name. A property whose rent clears the required threshold at the stress rate passes the test.
Why do lenders use 145 per cent for higher rate taxpayers?
Because mortgage interest relief in a personal name is restricted to a basic rate credit, a higher rate taxpayer keeps less of the rent after tax. The larger coverage margin compensates for that. Limited companies deduct interest as a business expense, so they are usually tested at 125 per cent.
What stress rate will a lender use?
On five year fixed rates, typically the pay rate or the pay rate plus a small margin. On shorter fixes, typically the higher of the pay rate plus 2 per cent or a floor around 5.5 per cent. Every lender sets its own basis, which is one reason maximum loans vary so widely between them.
What is top slicing?
Top slicing is where a lender uses surplus personal income to make up a shortfall in rental cover. It can rescue a case where the rent alone fails the ICR test, typically for borrowers with strong earnings and a lower yielding property. Not all lenders offer it and minimum income requirements apply.
Does the valuer's rent figure matter more than mine?
Yes. Lenders run the ICR on the valuer's assessment of achievable rent, not the applicant's estimate or even an existing tenancy figure in some cases. If the valuer's figure comes in lower, the maximum loan drops with it, so realistic rent expectations at the outset save failed applications.
Talk it through with us
Every case is different. Call us, message us on WhatsApp, or send us the basics and one of our team will come back to you about buy to let affordability, usually the same working day.