How is the interest cover ratio worked out?
An interest cover ratio (ICR) compares a property's rent with the mortgage interest, usually at a stressed rate. Lenders typically want rent to be at least 125% of the interest for companies and basic-rate taxpayers, and 145% for higher-rate taxpayers, before they will lend or refinance.
Read more in our guide: Financial pressure and your portfolio
Worked example
| Step | Figure |
|---|---|
| Monthly rent | £1,000 |
| Stressed rate used by lender | 5.5% |
| Required cover (higher-rate borrower) | 145% |
| Maximum annual interest | £12,000 ÷ 1.45 = £8,276 |
| Maximum loan | £8,276 ÷ 5.5% = about £150,500 |
| Same at 125% (company) | about £174,500 |
What the test measures
The ICR answers one question for a lender: if interest rates rise, will the rent still pay the interest with a margin to spare? The formula is annual rent divided by annual interest at the stress rate. A result of 1.45 means rent is 145% of interest.
The stress rate is set by each lender within Bank of England rules. It is usually higher than the rate you pay, though five-year fixed products are often tested nearer the pay rate.
Why the threshold differs
Individual landlords who pay higher-rate tax get only a basic-rate credit for interest under Section 24, so they keep less of each pound of rent. Lenders compensate with a tougher 145% test. Limited companies deduct interest in full and are usually tested at 125%.
When the test bites
Problems usually show at refinance. A landlord who borrowed at 2% may find that, at today's stress rates, the rent no longer supports the existing loan. The options are to pay down capital, accept a higher rate with a lender that tests differently, raise the rent within the Section 13 rules, or sell some properties to reduce debt across the portfolio.
Why it matters to buyers too
Investors buying with finance run the same test. A portfolio with low rents against value may only work for cash buyers or company buyers tested at 125%, which affects who can pay the best price.
Official Sources and Further Reading
General information for landlords in England, checked against official sources in October 2026. It is not tax, legal or financial advice: speak to a qualified accountant or solicitor about your own circumstances.
Frequently Asked Questions
An interest cover ratio (ICR) compares a property's rent with the mortgage interest, usually at a stressed rate. Lenders typically want rent to be at least 125% of the interest for companies and basic-rate taxpayers, and 145% for higher-rate taxpayers, before they will lend or refinance.
You may only be offered a smaller loan. You might move to your current lender's product transfer, which often needs no new test, pay down debt, or sell to reduce borrowing.
They are similar. A debt service cover ratio includes capital repayments as well as interest, while most buy-to-let lenders test interest only.
Some lenders offer top slicing, using your personal income to cover a shortfall in rent. Rules vary by lender.
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