Buy to let mortgage calculator

How buy-to-let lenders work out what you can borrow

On a home you live in, lenders look at your income. On a buy-to-let, they mostly look at the rent. The test is called the interest cover ratio, or ICR.

The lender takes the monthly rent and checks it covers the mortgage interest by a margin, at a notional rate that is usually higher than the rate you will pay. That higher rate is the stress rate.

A worked example

A terrace costs £120,000 and rents for £750 a month, which is £9,000 a year.

• At 125% cover and a 5.5% stress rate, the most a lender would lend is £9,000 ÷ (1.25 × 0.055) = £130,909. The 75% loan-to-value cap of £90,000 is lower, so £90,000 is the limit.
• At 145% cover, it is £9,000 ÷ (1.45 × 0.055) = £112,853. Still above £90,000, so this deal works either way.

Drop the rent to £500 and the 145% figure falls to £75,235. A higher-rate taxpayer buying in their own name would then need a bigger deposit, while a limited company could still borrow more.

What the other numbers mean

• Gross yield is the yearly rent divided by the price.
• Monthly cash flow is rent, less interest at your expected rate, less the costs you entered.
• Return on cash put in is your yearly cash flow divided by your deposit plus stamp duty.
• Stamp duty includes the 5% surcharge for additional properties.