How Lenders Assess Landlord Mortgages
Buy-to-let (BTL) mortgages are not assessed in the same way as residential mortgages. Instead of focusing mainly on your personal income, lenders use rental stress testing to decide how much they’re prepared to lend and whether your application is acceptable.
This guide explains how BTL stress tests work, the formulas lenders use, what “ICR” means, how interest rates and tax bands affect calculations, and what you can do if your deal doesn’t pass.
What Is Buy-to-Let Stress Testing?
Stress testing is the method lenders use to check that your rental income can comfortably cover mortgage payments, even if interest rates increase. Rather than using the actual interest rate on your chosen product, they apply a “stressed” rate and a rental coverage ratio.
In simple terms, lenders ask:
“If rates were higher than they are today, would the rent still cover the mortgage by a safe margin?”
That margin is known as the Interest Cover Ratio (ICR).
Key Terms: ICR & Stressed Rate
Interest Cover Ratio (ICR) ICR is the ratio of your gross monthly rent compared to your monthly mortgage interest payment at the lender’s stressed rate.
- 125% for basic-rate taxpayers (sometimes for limited company borrowers)
- 140–145% for higher-rate taxpayers and some personal borrowers
Stressed Interest Rate The stressed rate is usually higher than the product’s pay rate and is set by the lender. It could be, for example, 6.5%, 7% or 8% depending on the market and product type.
The Basic BTL Stress Test Formula
Lenders typically use this calculation: Maximum Loan = (Annual Rent ÷ ICR) ÷ Stressed Rate
Example 1 – Simple Single-Let
- Property value: £250,000
- Annual rent: £15,000 (£1,250 per month)
- ICR: 145% | Stressed rate: 7%
- Step 1: £15,000 ÷ 1.45 = £10,344.83
- Step 2: £10,344.83 ÷ 0.07 ≈ £147,783 Maximum Loan
Why Structure Matters (Limited Company vs Personal)
Many lenders use different ICR and stress rates depending on whether the property is held personally or through a limited company (SPV):
- Limited company/SPV: ICR often at 125% because the company is taxed on profits rather than at personal income tax rates.
- Personal ownership: ICR commonly set at 140–145% for higher-rate taxpayers.
Example: Personal vs Limited Company (Annual rent: £18,000 | Stressed rate: 7%)
- Personal (145% ICR): ≈ £177,340 maximum loan
- Limited Company (125% ICR): = £205,714 maximum loan The limited company structure supports a significantly higher loan for the same rent.
Different Stressing for Different Products
- Fixed rates (5 years or longer): Often stressed at or near pay rate, sometimes with a small margin.
- Shorter fixed rates / variable rates: Often stressed at higher nominal rates (6.5–8%+).
This is why 5-year fixed deals can be popular for landlords who want to maximise borrowing.
How to Improve Your Chances of Passing Stress Tests
If you’re struggling to pass lender stress calculations, consider:
- Increasing your deposit
- Choosing a 5-year fixed rate
- Targeting properties with higher yield
- Using a limited company SPV for ICR benefits
What If Your Deal Fails Stress Testing?
If the figures don’t work, you can explore:
- A different lender with more flexible ICR/stress rates
- Switching to a 5-year fixed product
- Reducing the loan amount
- Looking at an alternative property with stronger rental yield
Does Personal Income Matter for BTL?
Even though BTL is mainly rental-based, many lenders still expect:
- A minimum personal income, often around £25,000+
- Stable employment or self-employment
- Clean or stable credit profile
If you are self-employed or a company director, it can help to review our Self-Employed Mortgage Guide.
Next Steps
BTL stress testing is one of the most important concepts for landlords to understand. If you want to know how much you can realistically borrow, we can connect you with FCA-regulated advisers who work with a wide panel of buy-to-let lenders.
You can also read How Much Can I Borrow? (for residential) and explore Limited Company BTL for structuring options.
All mortgage advice is provided by FCA-regulated advisers. Your home may be repossessed if you do not keep up repayments on your mortgage.
FAQs
Do all lenders use the same stress test? No. Different lenders use different ICR percentages, stress rates and rules depending on product type and structure.
Is stress testing stricter for higher-rate taxpayers? Often yes, especially when borrowing in personal names. Limited company BTL can sometimes reduce this impact.
Will stress testing ease if interest rates fall? Possibly — some lenders may reduce stressed rates or adjust calculations, but this depends on their risk appetite.
Is HMO stress testing different? Yes, HMOs are usually treated as higher-risk and assessed with slightly different assumptions.
Can I influence the rental figure used? Lenders typically rely on the surveyor’s opinion of market rent, not just current tenancy agreements.