Buy To Let: Interest Cover Ratio

Buy To Let: Interest Cover Ratio (ICR)

The minimum ICR stress rates are detailed below:

Basic Rate Taxpayer
125% at the product rate + 2% OR the initial product rate if fixed for 5 years or longer.

Higher Rate Taxpayer
130% at the product rate + 2% OR the initial product rate if fixed for 5 years or longer.

Limited Co BTL
125% at the product rate + 2% OR the initial product rate if fixed for 5 years or longer.

Ex-Pat BTL
125% at the product rate + 2% OR the initial product rate if fixed for 5 years or longer.
-  The Basic Rate Taxpayer ICR may be applied to all Ex-Pat applicants, although it is acknowledged that their income is not subject to UK tax rules.
-  The only exception is where there is an additional stream in the UK that places the applicants into the higher rate tax bracket on its own.

ICR Formulas

The ICR formula to calculate the minimum rental income required is: loan amount x interest stress rate x taxpayer stress rate / 12 = the monthly minimum.
The ICR to calculate the maximum loan amount is: monthly rental income x 12/ interest stress rate / taxpayer stress rate = maximum loan amount.

Example ICR Calculation:

For a Basic Rate Taxpayer on an example product, please see below:
-  The Loan amount required is £150,000
-  The interest stress rate at 5.50%
-  The monthly payment at a 5.50% reference rate (interest only) is £687.50
-  The monthly payment x 125% (minimum rental cover) is £859.38