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  • Writer's pictureMatthew Pigrome

Understanding Buy-to-Let ICR Calculation

Updated: Mar 7

Buy-to-let (BTL) mortgages are a popular choice for property investors in the UK. However, lenders use a strict set of criteria to determine whether a landlord can afford a mortgage on their rental property. One of these criteria is the Interest Coverage Ratio (ICR).


In this blog, we'll explain what the ICR is, how it's calculated, and how you can maximize your chances of getting approved for a buy-to-let mortgage.


What is the Interest Coverage Ratio (ICR)?

The ICR is a ratio that measures the rental income generated by a property against the mortgage payments required to service that property. It's a key metric that lenders use to assess whether a landlord can afford a mortgage on a buy-to-let property.


In simple terms, the ICR is a calculation that helps lenders understand whether a landlord's rental income will be enough to cover the mortgage repayments on their property.


How is the ICR calculated?

To calculate the ICR, lenders will typically require a landlord to provide details of their rental income, as well as any other income they receive. They will then use a formula to determine whether the rental income is sufficient to cover the mortgage repayments.


The formula for calculating the ICR is:


ICR = (Gross Annual Rental Income x 100) / (Mortgage Interest Payment + Other Costs)


In this formula, the Gross Annual Rental Income is the total amount of rent received over a year, while the Mortgage Interest Payment is the annual cost of the mortgage. Other costs may include things like property management fees, insurance, and maintenance costs.


What ICR do lenders require?

Lenders will typically require a minimum ICR of 125%. This means that the rental income generated by the property must be at least 125% of the mortgage payments required to service the property.


For example, if the mortgage payments on a property are £800 per month (£9,600 per year), the minimum required rental income would be £12,000 per year (125% of £9,600).


How to maximize your rental income

If you're a landlord looking to maximize your rental income, there are several things you can do to improve your chances of getting approved for a buy-to-let mortgage.

  1. Choose the right location: Look for areas with high demand for rental properties, such as university towns or cities with strong job markets.

  2. Offer attractive amenities: Consider offering amenities like high-speed internet, modern appliances, or off-street parking to attract higher-paying tenants.

  3. Keep your property well-maintained: Regularly maintaining your property can help attract and retain tenants, which can in turn increase your rental income.

  4. Review your rental rates: Regularly review your rental rates to ensure they're in line with the local market. Consider increasing rents if demand is high, or lowering them if you're struggling to find tenants.


In summary, the ICR is a key metric that lenders use to assess whether a landlord can afford a buy-to-let mortgage. By understanding how the ICR is calculated and taking steps to maximise your rental income, you can improve your chances of getting approved for a mortgage and achieve greater financial success as a landlord.

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