Buy-to-let mortgage calculator
How much a landlord can borrow is set by the rent, not the property value. This applies the rental cover test lenders use, then shows the interest-only monthly payment.
How the borrowing cap works
A buy-to-let mortgage is sized from the rent, not from your salary. The lender runs an Interest Cover Ratio test: the annual rent has to cover a set multiple of the mortgage interest, and that interest is worked out at a stress rate set above the real pay rate. Rearranging the test gives the maximum loan directly, so a higher rent lifts the cap while a higher cover ratio or stress rate pulls it down.
The cover ratio depends on the borrower. A basic-rate taxpayer or a limited company is often tested at 125%, because more of the rent survives tax. A higher-rate individual landlord is usually tested at 145%, which shrinks the loan for the same rent. The stress rate does the same job from the other side: it keeps the limit cautious in case rates climb.
Worked example
Take £1,200 a month, which is £14,400 a year. At a 145% cover ratio the rent is allowed to cover £9,931 of interest, and at a 5.5% stress rate that supports a loan of about £180,564. The real monthly cost is interest-only at the 5.00% pay rate, which is £752.35. Note that this figure is before letting costs, voids and tax on the rental profit.
Common questions
How do lenders decide the maximum buy-to-let loan?
Most use a rental cover test, also called the Interest Cover Ratio. The annual rent must cover a set multiple of the mortgage interest, worked out at a stress rate that is higher than the pay rate. On £1,200 a month at a 145% cover ratio and a 5.5% stress rate, the cap is about £180,564.
Why 125% for some borrowers and 145% for others?
The cover ratio reflects tax. Basic-rate taxpayers and many limited-company borrowers are often tested at 125%, while higher-rate individual landlords are usually tested at 145% because they keep less of the rent after tax. A higher ratio means a smaller loan for the same rent.
What is the stress rate?
It is a notional interest rate, usually around 5.5% or the pay rate plus a margin, that the lender uses only to size the loan. It is not what you pay. It protects the lender if rates rise, so the borrowing limit stays cautious even when deals look cheap.
Why is the monthly payment interest-only?
Most buy-to-let mortgages are interest-only, so the monthly cost is only interest on the balance and the full loan is still owed at the end. That keeps the payment low against the rent. The calculator shows the interest-only cost at the actual pay rate, not the stress rate.
Does passing the cover test mean the property makes money?
No. The test only checks the rent against the interest. Running costs, letting fees, voids, maintenance and tax on the rental profit all come out on top. A property can pass the lender test and still leave little in hand once those are paid.