Navigating the UK buy-to-let market in 2025: the role of ICR and top-slicing

The UK buy-to-let market in 2025 continues to be characterised by dynamic changes and evolving challenges.

As interest rates change and regulatory landscapes shift, landlords may find themselves navigating complex financial waters. Two critical concepts that can be helpful through this journey are Interest Coverage Ratios (ICR) and the use of top-slicing in order to support landlord borrowers to get the mortgages they want and need. Understanding these can significantly impact investment decisions and help with stability, and so support for landlord borrowers from brokers across these is critical.

Firstly, starting with ICR - a vital metric for landlords and lenders alike. It measures the extent to which rental income will cover mortgage payments, ensuring affordability remains viable should interest rates rise.

It helps lenders assess the financial stability and risk associated with an investment. Typically, lenders require an ICR of between 125% to 145%, meaning rental income must exceed mortgage payments by at least 25% to 45%. This ratio is important for assessing the financial health of a buy-to-let investment and determining borrowing capacity.

Higher interest rates and stringent stress rates make maintaining a healthy ICR more challenging. Landlords must therefore ensure their rental income can withstand potential rate increases, making it essential to have a clear understanding of their financial position before committing to new investments.

Top-slicing offers a solution for landlords who may present with affordability issues. This approach allows lenders to consider a borrower’s surplus personal income to cover any shortfall in the rental income needed to secure the loan.

In regions with high property costs but lower rental yields, such as London, top-slicing can be particularly beneficial. It can also help increase the borrowing potential of a client allowing them, for example, to purchase an additional buy-to-let property. Overall top slicing provides flexibility and reassurance to both lenders and borrowers, ensuring mortgage obligations are met even if rental income alone falls short.

The role of brokers is more critical than ever in this regard. Lenders must support brokers by providing comprehensive education, training, resources, and flexible lending solutions. Effective communication and collaboration with lenders is essential, as brokers need to ensure their clients’ needs are understood and that products offered help meet those needs, especially in a challenging market.

For landlords, working with a broker provides access the full spectrum of mortgage products and market insights. The frequent changes to legislation in the buy-to-let market, means brokers should stay updated on regulations such as the Energy Performance Certificate (EPC) requirements, tax changes, and Stamp Duty adjustments to name a few.

Many landlords are coming off fixed-rate mortgages and facing higher remortgage payments, which may reduce their rental income and affect their ability to meet mortgage obligations. Brokers play a crucial role in educating landlords about the financial and regulatory landscape, including advising on ways to increase rental income without significant investment.

The support brokers provide to landlords and information they pass back to lenders is invaluable in a market where conditions can change rapidly, and staying ahead of trends is crucial.

In conclusion, navigating the UK buy-to-let market in 2025 requires a solid understanding of ICR and top-slice mortgages. Lenders and brokers can work together to support landlords, ensuring they have the tools and knowledge needed to succeed. By leveraging broker expertise and accessing comprehensive resources, landlords can make informed decisions and thrive in an ever-changing market.

Buy-to-let from Bank of Ireland for Intermediaries

For those seeking further information and support on buy-to-let mortgages, please visit Bank of Ireland for Intermediaries’ website. You can find more information and support on our BTL offerings here.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.