2.1 When assessing the affordability of a buy-to-let mortgage contract, the PRA expects firms to use a method which will include:

(a) whether the income derived from the property is sufficient to support the monthly interest cost of the mortgage payments using an interest coverage ratio (ICR) test; and/or

(b) if firms are taking account of personal income as a means for the borrower to support the interest and capital (if applicable) monthly mortgage payments, whether that income, in addition to any income derived from the property, is sufficient to support the mortgage payments using an income affordability test.

2.2 Firms should not base their assessment of affordability on the equity in the property which is used as security under the buy-to-let mortgage contract, or take account of a future increase in property prices.

Interest coverage ratio (ICR) calculation

2.3 The PRA expects firms to define the ICR as the ratio of the expected monthly rental income from the buy-to-let property to the monthly interest payments which take into account likely future interest rate increases as set out in paragraphs 2.11 to 2.17.

2.4 When assessing their minimum ICR threshold, firms should take into account rental demand and typical rent levels within the property's locale. Expected rental income should be verified by a suitably qualified valuer who is independent of the borrower, automated valuation models or evidence of an existing rental agreement, subject to appropriate policies, controls and risk management.