Question 1

What's the minimum rental coverage ratio (ICR) UK lenders require?

Accepted Answer

Most lenders require 125%–145% rental coverage, depending on tax band and rate type. Basic-rate taxpayers and Ltd Co BTLs typically need 125%; higher-rate taxpayers personally holding properties need 145% with most lenders. Specialist lenders sometimes accept lower ratios on 5-year fixed products because the long fix justifies a softer stress.

Question 2

Does the stress rate vary by tax band?

Accepted Answer

Yes. Higher-rate taxpayers face stricter stress (often 5.5%–7%) than basic-rate taxpayers, reflecting Section 24's impact on net rental income. Ltd Co BTLs are usually stressed similarly to basic-rate because mortgage interest remains fully deductible inside the company.

Question 3

What's top slicing and when does it apply?

Accepted Answer

Top slicing lets surplus personal income offset a rental coverage shortfall. So if a property fails ICR by £150/month, the lender can use your day-job income to cover the gap. Not all lenders offer it, and those that do may cap the slice. Particularly useful for low-yield London properties where rent struggles to clear the stress test.

Question 4

How does HMO rental coverage differ from a single-let?

Accepted Answer

HMO income is calculated per-room rather than per-property, and lenders typically use 5%–10% void allowance to reflect higher turnover. Some lenders cap how many rooms they'll count. Yields are higher but the stress test is often applied to total achievable rent with discounts, so an HMO doesn't always sail through ICR despite the headline yield.

Question 5

What rate do lenders use for the stress test?

Accepted Answer

Most lenders stress at 5.5%–7% on 2-year products and pay rate + 0.5%–2% on 5-year fixes (because the long fix reduces refinance risk). The Bank of England base rate doesn't directly drive stress rates — lenders set their own, and the gap between today's pay rates and stress rates is what determines whether rental coverage holds.

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