ICR (Interest Coverage Ratio)

The Interest Coverage Ratio (ICR) is the primary metric BTL mortgage lenders use to assess whether a property generates sufficient rental income to cover the mortgage interest. It is expressed as a ratio or percentage.

The ICR is calculated as: Monthly rent / Monthly mortgage interest. A ratio of 1.25 means rent is 125% of the monthly interest payment.

Most BTL lenders require an ICR of at least 125% for basic rate taxpayers and 145% for higher rate taxpayers. The stress test is applied at a notional rate (typically 5.5% or the product rate plus 2%, whichever is higher) rather than the actual mortgage rate. This ensures the mortgage remains serviceable if rates rise.

The ICR test constrains how much you can borrow. If you want to borrow more (lower deposit), the rental income must be proportionally higher to compensate. In areas with low yields, the ICR test can prevent investors from achieving 75% LTV, forcing larger deposits.

Limited company BTL mortgages use the same ICR principles but some lenders apply slightly different stress rates. A specialist broker will know which lenders have the most favourable ICR calculations for each situation.