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Understanding buy-to-let affordability
A plain-English guide to how lenders assess buy-to-let mortgages, and what affects how much you can borrow.
How lenders assess buy-to-let affordability
Unlike a residential mortgage, buy-to-let lending is mainly assessed on the rental income the property can generate, not your personal salary. Lenders want to see that the rent comfortably covers the mortgage payment, with a buffer in case interest rates rise or the property is empty for a period.
What is the interest cover ratio?
The interest cover ratio, or ICR, is the minimum percentage by which your rental income must exceed your mortgage payment. If a lender requires 145% cover and your mortgage costs £100 a month, your rent needs to be at least £145 a month. The required ratio depends on your tax status.
Frequently asked questions
Why does my tax status affect my mortgage?
Higher and additional-rate taxpayers receive less tax relief on mortgage interest than basic-rate taxpayers, which reduces their net rental profit. Lenders apply a higher ICR to these borrowers to ensure the rent still comfortably covers costs after tax.
Should I buy personally or through a company?
This depends on your individual tax position, how many properties you own, and your long-term plans. Limited company ownership can offer tax advantages for some landlords but comes with its own costs and considerations. This is a decision worth discussing with an accountant.
What if the rent doesn't cover the ICR test?
If the rental income alone doesn't support the loan you need, some lenders allow "top-slicing" — using your personal income to make up the shortfall. Not all lenders offer this, so it's worth discussing with a specialist buy-to-let broker.
This guide is for general information only and does not constitute financial advice. Always speak to a qualified mortgage adviser or broker before proceeding.