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£
Monthly rental income expected from the property
Basic rate taxpayers receive 20% tax credit on mortgage interest
The actual interest rate you'll pay
Rate used for affordability calculation
Understanding BTL Lending
Rental Cover Requirements
125%: Basic rate taxpayers and Ltd companies
145%: Higher/additional rate taxpayers
This means rent must cover 125-145% of the mortgage payment.
Personal vs Ltd Company
Personal: Only 20% tax relief on interest (regardless of tax bracket)
Ltd Co: Full interest tax deductible, but pay 19% corporation tax on profits
Stress Testing
Lenders assess affordability using a stressed rate, which can be equal to the pay rate (for some £-for-£ remortgages) or typically 1-2% above the pay rate.
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