The gross rental income from the property should equal or exceed the Interest Coverage Ratio as determined by the tax band applicable to an applicant’s income. The tax band applicable to the applicant with the highest income will be used.
The tax band and ICR levels are as follows:
Applicant type |
Applicant ICR |
Basic Rate Tax Payer (20%) |
125% |
Higher rate tax payers (40%) |
140% |
Additional rate tax payers (45%) |
140% |
To cater for the PRA affordability regulation, we will now require a property schedule to be completed as part of the online application in every case (a copy of this is available on our documents page for your information). We will also need to ask for more information about your customer’s income to enable us to apply the appropriate tax band and ICR to the affordability assessment.
The future affordability assessment will be based on our current understanding of interest rates going forward and rental inflation. We must be satisfied that the applicant(s) are able to withstand increases in mortgage interest rates, cover rental voids and be able to afford the mortgage now and after any fixed/discounted period expires.