For buy-to-let investors, affordability has always been tied less to personal income and more to the rental income generated by the property. But in 2025, the bar has been raised higher than ever. Lenders apply strict Interest Coverage Ratio (ICR) and stress testing requirements to ensure landlords can service their debt, even if interest rates rise.

While these rules were designed to promote responsible lending, they have also reduced borrowing power for many landlords—particularly those in London and the South East, where yields are often slimmer. The question most investors face now is simple: how do I pass the stress tests and secure the finance I need?

This blog explores how ICR works in 2025, why stress rates vary, and the strategies landlords can use to optimise borrowing.

What Is ICR and Stress Testing?

The Interest Coverage Ratio (ICR) measures how much rental income exceeds the mortgage interest payments. Lenders set minimum ratios—often 125% for basic-rate taxpayers and up to 145% for higher-rate taxpayers.

Stress testing adds another layer. Instead of assessing affordability at the product’s actual rate, lenders assume a higher notional interest rate (sometimes 6% or more) to check resilience. This means that even if you are securing a mortgage at 4.5%, the lender may test affordability as if you were paying 6.5%.

The result: many landlords, particularly in lower-yield markets, find their borrowing capacity squeezed.

Why 2025 Is Tougher for Landlords

Several factors have made ICR hurdles steeper this year:

• Lingering rate volatility: Although interest rates have stabilised since the highs of 2023, lenders remain cautious, applying conservative stress rates to guard against future shocks.

• Regulatory pressure: The Prudential Regulation Authority continues to push lenders to ensure landlords have financial headroom, especially portfolio investors.

• Tax treatment: Section 24 rules, which limit mortgage interest relief for individual landlords, effectively increase the stress thresholds for higher-rate taxpayers.

For many, this creates a Catch-22: strong rental demand exists, but lenders restrict how much capital landlords can deploy.

Strategies to Improve Borrowing Power

The good news is that landlords are not powerless. Several strategies can help you pass ICR tests and secure the borrowing you need:

1. Using a Limited Company (SPV) Structure

Many lenders apply lower stress rates for limited company applications, recognising the tax treatment of mortgage interest as a business expense. This can significantly increase borrowing capacity. We explained this in detail in SPVs vs. Trading Companies: What Landlords Must Know in 2025.

2. Opting for Longer-Term Fixed Rates

Five- or seven-year fixed products often come with lower stress rates because lenders view them as more stable. A landlord struggling to pass ICR on a two-year fix may find approval possible on a five-year option.

3. Considering Top-Slicing

Some lenders allow “top-slicing,” where personal income supplements rental income to meet affordability. This approach is particularly relevant for higher earners investing in lower-yield markets.

4. Improving Rental Yields

Increasing rent to reflect market levels or adding value through refurbishment can strengthen ICR calculations. Many landlords combine this with refinancing strategies explored in Remortgaging Buy-to-Let Properties in 2025.

5. Turning to Private Banks

For landlords with large portfolios or high-value properties, private banks may take a more pragmatic view—assessing the overall financial position rather than rigid ICR formulas.

Real-World Example

A Willow client recently approached us with a London flat generating £2,000 per month in rent. On a £500,000 loan request, mainstream lenders applied a 6.5% stress rate, which required rental income of over £3,000 per month to pass ICR. The client was initially declined.

By restructuring the application through a limited company and selecting a five-year fixed product, we reduced the stress rate to 5%, making the rental income sufficient. The mortgage was approved, and the client retained ownership of a strong long-term asset.

Portfolio Landlords and ICR

For portfolio landlords with four or more properties, ICR is assessed across the entire portfolio rather than on individual properties alone. This means that a weak-yielding property in London could be offset by higher yields elsewhere, provided the average meets lender thresholds.

However, portfolio assessments also involve deeper scrutiny—lenders may require a full schedule of assets, liabilities, and cash flow. Ensuring records are clear and up to date is crucial for smooth approvals.

Strategic Outlook

Stress testing is unlikely to disappear anytime soon. Regulators see it as a cornerstone of market stability. But landlords who understand the rules—and structure their borrowing smartly—can still unlock opportunities. By using company structures, longer fixes, or private bank flexibility, many can continue to invest in 2025 despite the headwinds.

How Willow Can Help

At Willow Private Finance, we specialise in helping landlords navigate stress testing hurdles. Whether you are a first-time investor or a portfolio landlord managing dozens of units, we know which lenders apply more flexible rules, how to present your case effectively, and when to consider private bank solutions.

Our independence and market coverage mean we can find solutions that others miss, ensuring you can continue to grow your portfolio despite the challenges of today’s lending environment.

Frequently Asked Questions

What is ICR and how do lenders use stress testing?
ICR (Interest Coverage Ratio) measures how much rental income exceeds mortgage interest payments. Lenders apply a “stress rate” (often higher than the product rate) to test resilience, ensuring landlords can service debt under interest rate rises. Willow Private Finance

Why is 2025 more challenging for passing ICR tests?
Because lenders are using more conservative stress rates, regulatory pressure is increasing to avoid risk, and tax rules (e.g. Section 24) effectively raise the burden on higher-rate taxpayers. Willow Private Finance

What strategies can landlords use to improve borrowing power under ICR stress tests?

• Use a limited company (SPV) structure
• Opt for longer fixed-rate products to reduce stress rate
• “Top-slice” with personal income (if lender allows)
• Improve rental yield or refurbish the property
• Use private banks or lenders with more flexible underwriting Willow Private Finance

How do portfolio landlords get assessed under ICR rules?
Lenders often assess the entire portfolio collective ICR — weaker properties may be offset by higher-yield ones. But portfolio cases also come with deeper scrutiny of cash flows, liabilities and structure. Willow Private Finance



How does Willow help landlords pass ICR stress testing?
Willow helps identify lenders with more flexible approaches, structure the application (e.g. via SPV, extended fixes), present projections properly, and pivot to private bank options when needed. Willow Private Finance

📞 Want Help Navigating Today’s Market?

If you are struggling to pass ICR or stress testing hurdles in 2025, don’t let lender formulas hold you back.