Buy to Let Affordability Calculator

Interest cover ratio measures rental income against the mortgage interest a lender tests it against, rather than the interest actually charged. This calculator takes a property price, an expected rent, a loan-to-value ratio and a stress rate, works out the interest at that stressed rate, and expresses the rent as a percentage of it. Lenders in several markets set a minimum cover, commonly quoted around 125% for individual landlords, and the tool compares the computed ratio against whatever threshold is entered.

The sample figures on this page

On the sample figures used on this page, a 250,000 property let at 1,300 a month at 75% LTV gives a 187,500 loan; at a 7% stress rate the monthly interest is 1,093.75, and the rent is 118.86% of it. Those are sample figures for the fields rather than a market reading, and the per-currency defaults differ.

The levers in this calculation

Three of the five inputs are exactly interchangeable. Property price, loan-to-value and stress rate enter the calculation only as a product, so a 1% rise in any one of them has an identical effect to a 1% rise in either of the others, to every decimal place. Rent is the reciprocal partner of that product: raising rent by 1% multiplies the ratio by exactly 1.01, while raising any of the other three divides it by 1.01, which is a slightly smaller move in the opposite direction. That holds at every price level, every ratio and every currency. ICR Required is not a lever on the headline at all. It sets the threshold the status row compares against and leaves the ratio itself unchanged.

How the math works

The loan is the property price multiplied by the loan-to-value ratio. The monthly interest is that loan multiplied by the stress rate and divided by 12, which is simple interest on the whole balance. The ratio is the monthly rent divided by that interest, expressed as a percentage, and the panel also reports the rent that would land on the required threshold and the gap to it.

Stress-testing the plan

The stress rate carries the modelling uncertainty rather than the arithmetic. Setting it above the rate on offer shows how the cover holds if a fixed period ends on a pricier product. A deal that clears the entered threshold at one rate and falls below it at a higher one is showing the sensitivity a stress test exists to surface.

Worked example

A property valued at 300,000 is expected to let at 1,500 a month, with a lender offering 80% loan-to-value for a 240,000 loan, stress-testing at 7.5%, and requiring 130% cover. Entering those figures gives monthly interest at the stressed rate of 1,500 and a cover ratio of 100%. That falls short of the 130% threshold, so the application would not meet the criteria on this scenario alone.

Where this ratio is applied

The ratio appears most often when a lender assesses a buy-to-let application. Landlords planning an additional property, portfolio investors modelling an expansion, and existing owners facing a rate reset are the situations where it is usually applied.

What the result shows and does not show

The ratio states the relationship between rental income and interest payable at a stressed rate. A figure above the entered threshold means the rent covers that interest by the required margin; below it means a shortfall under the stress scenario. The calculation does not model capital appreciation or depreciation, tenant turnover, void periods, maintenance spend, management fees, or local market conditions. It isolates the income-to-interest relationship and is one input to a wider assessment.