What Does ICR Mean On A Buy To Let Mortgage?
ICR stands for Interest Coverage Ratio.
It expresses rental income as a percentage of the mortgage interest on an investment property. On buy-to-let and investment lending it is usually the test that determines the maximum loan — more often than the loan to value does.
ICR Example
- Monthly rent: £1,250
- Monthly mortgage interest at the lender’s stress rate: £1,000
- ICR = 125%
Lenders typically want to see somewhere between 125% and 145%, depending on the borrower’s tax position, the property type and their own policy. Higher-rate taxpayers and more complex property types generally face a higher requirement.
The Stress Rate Is The Part That Surprises People
ICR is almost never calculated using the rate you are actually paying. Lenders apply a stress rate — a notional higher interest rate used to check the rent would still cover the loan if rates rose. That stress rate can be considerably above the product rate.
This is why two lenders can quote very similar rates yet offer materially different loan amounts on the same property. The difference is usually the stress rate and the ICR threshold, not the headline pricing.
Longer fixed terms often attract a lower stress rate, which is one reason a five-year fix can support a larger loan than a two-year product on identical rent.
For commercial property and trading businesses, lenders more commonly use DSCR instead.
Read more about buy to let mortgages and commercial mortgages.
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