Breakdown
How it works
Lenders require monthly rent to cover the interest at a stressed rate by a margin: 125% for basic-rate taxpayers and limited companies, 145% for higher-rate taxpayers. The loan is then capped at 75% LTV (80% with a few lenders). Where rents are low relative to prices, the rental test limits the loan and forces a bigger deposit.
Formula
Worked example
£250,000 flat, £1,250 rent, 5.5% stress, 145% ICR: 15,000 ÷ 1.45 ÷ 0.055 = £188,000 by rent; £187,500 by 75% LTV → loan £187,500, deposit £62,500.
Frequently asked questions
Why 145% for higher-rate taxpayers?
Because Section 24 means they pay tax on rent before mortgage interest, so lenders demand more headroom. Limited-company borrowers are tested at 125%.
Can personal income help?
Some lenders allow "top-slicing" — using surplus personal income to cover a rental shortfall — usually for borrowers with £25,000+ income.
Do I need to be a homeowner?
Most BTL lenders require you to own your home and earn £25,000+; first-time landlords have fewer options and pay slightly more.