On a buy to let, your loan size is set by the rent the property will achieve, not by your salary. The lender checks the rent covers the mortgage interest by a required margin — commonly 125% to 145% — calculated at a notional rate that is usually higher than the one you will actually pay. That calculation is the rental stress test, and it decides almost everything.
How the calculation works
Three inputs:
- The rental figure. Not what you hope to achieve — what the lender's surveyor assesses the property will achieve
- The coverage ratio. Typically 125%, 140% or 145%, depending on your tax status and how you are borrowing
- The stress rate. A notional interest rate the lender applies, usually above your actual pay rate
The lender asks: at the stress rate, does the assessed rent cover the interest by the required margin? If yes, the loan proceeds. If no, the loan is reduced until it does — and your deposit has to grow to fill the gap.
This is why the maximum loan on a buy to let often has nothing to do with what you earn.
Why two landlords get different answers on the same property
The coverage ratio is not the same for everyone.
Basic rate taxpayers typically face a lower ratio, often 125%. Higher rate taxpayers typically face a higher one, often 140% or 145%, because more of the rent will go in tax. Limited company borrowing frequently attracts a ratio closer to 125%, since companies are taxed differently.
So two people buying the identical Leicester property, with the identical deposit, can be offered materially different loans purely because of their tax position and borrowing structure. Nothing about the property has changed.
Why the rental valuation matters so much
The rent used is the surveyor's assessment, not the letting agent's optimism.
If a surveyor assesses achievable rent below your expectation, the whole calculation shrinks. This is the most common reason a buy to let purchase suddenly needs a larger deposit late in the process.
Two practical protections:
- Get a written rental assessment from a local letting agent before you offer. If the surveyor comes in low, an agent's written evidence gives you something to challenge with
- Be realistic about the configuration. A three-bedroom house valued as a family let will assess lower than the same house let by the room — but the room-by-room figure only applies if the lender is willing to lend on that basis
Where Leicester helps
Leicester's advantage for landlords is the relationship between purchase price and achievable rent. Because prices sit well below the national average while tenant demand is supported by the two universities, the hospital trust and the logistics employers across the county, properties here frequently clear the stress test at loan sizes that would fail in higher-priced parts of the country.
That does not mean every property passes. It means the arithmetic starts from a better place than it would in the south east.
Top slicing
Some lenders offer top slicing, which allows surplus personal income to make up a shortfall in rental cover.
If a property nearly passes but not quite, and you have provable earned income beyond your own household needs, a top-slicing lender may still lend the full amount. Not all lenders offer it, criteria vary, and it usually requires a decent income.
It is a genuinely useful route where a good property narrowly fails the standard test.
How to improve your outcome
Increase the deposit. The most direct lever. A smaller loan needs less rental cover.
Choose the right lender for your tax position. The difference between a 125% and a 145% ratio is substantial on the same property.
Consider the ownership structure — but as a tax decision first, taken with an accountant, not as a way to game the stress test.
Check the rental assessment before you offer, not after.
Look at the property's letting configuration. A property that can be let as an HMO may support a higher rent, but needs an HMO lender and brings licensing obligations.
Run the numbers before you offer
We can tell you what the stress test will support before you commit to a purchase price. That is a five-minute conversation and it prevents the most common and most expensive surprise in buy to let.
Call 0116 277 7536 or see buy to let mortgages in Leicester.
More guides: buy to let guides for Leicester.
