Rate watch · Buy-to-let · 5 min read
Buy-to-let: how rental cover decides what you can borrow
Landlord lenders care about the rent more than your salary. A worked example of the 125% and 145% tests, and why the stress rate is not the rate you pay.
Written . Rates and criteria change; check the date before relying on a figure.
On a residential mortgage, your income decides how much you can borrow. On a buy-to-let, the rent does.
The test
Most lenders want the monthly rent to be at least a set percentage of the monthly interest, calculated at a stress rate. The usual numbers are 125% for basic-rate taxpayers and limited companies, and 145% for higher-rate taxpayers buying in their own name. The stress rate is often around 5.5% to 6%, even when the product you take is at 4.79%.
A worked example
A two-bedroom terrace lets for £1,250 a month. The lender stresses at 5.5% and wants 145% cover.
- Maximum monthly interest: £1,250 ÷ 1.45 = £862
- Maximum loan: £862 × 12 ÷ 5.5% = about £188,000
If the same purchase goes through a limited company at 125% cover, the maximum loan rises to about £218,000. The rent did not change. The rule did.
What helps
A five-year fix often gets a lower stress rate than a two-year one, so it can raise the loan without raising the rent. Some lenders will also “top-slice”: use some of your personal income to cover a shortfall in rent. We run every lender’s test before you make an offer, so you know what the property supports.
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