Dominic, a higher-rate taxpayer, wants a buy-to-let loan. His lender applies an interest cover ratio of 145% at a 5% stress rate to higher-rate taxpayers. The expected rent is £1,305 a month. What is the maximum loan on rental cover alone?
Annual rent is £1,305 × 12 = £15,660. Maximum stressed interest is £15,660 ÷ 1.45 = £10,800, and £10,800 ÷ 5% = £216,000. Lenders apply higher cover ratios to higher-rate taxpayers because Section 24 restricts relief on finance costs to a 20% tax credit for 2026/27 (gov.uk). £313,200 ignores the ratio, £250,560 uses 125%, and £454,140 multiplies by 1.45.
Using the basic-rate cover ratio for a higher-rate taxpayer.
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