How do lenders stress test rental income?
By Seema Babber · Reviewed by Arifa Shakoor
· 5 min read
Quick summary
Buy-to-let lenders check that the expected monthly rent covers the mortgage interest by a set margin — often 125% to 145% — calculated at a “stress” interest rate that may be higher than the rate you pay.
The interest cover ratio
Lenders divide the expected rent by the mortgage interest at their stress rate. The result must meet their minimum ratio, which can differ for basic-rate and higher-rate taxpayers and for limited companies.
What can help
- A larger deposit, which reduces the loan
- Longer fixed rates, which some lenders stress at a lower rate
- Using personal income to “top slice”, where a lender allows it
Your property may be repossessed if you do not keep up repayments on your mortgage. Most buy-to-let mortgages are not regulated by the Financial Conduct Authority.
Sources
GOV.UK — renting out a property
Written by
Seema Babber · Mortgage adviser
Seema looks after buyers from the first affordability check to completion, working alongside a dedicated case handler so clients always have someone to call.
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