The rent coverage ratio, often referred to as the debt service coverage ratio (DSCR) in commercial lending, is a measure of the cash flow available to pay current debt obligations. In the context of a commercial buy-to-let mortgage application, it's typically the ratio of the rental income from the property to the mortgage payments. Lenders use this ratio to assess the risk associated with the loan – if the rental income comfortably covers the mortgage repayments, the loan is seen as less risky.
Most lenders require a minimum rent coverage ratio, often around 125% to 130%, for commercial buy-to-let mortgages. This means the rental income must be at least 125% to 130% of the mortgage repayments. For example, if your mortgage repayments are £1,000 per month, you would need a rental income of at least £1,250 to £1,300 per month to meet this requirement. If the rental income is lower than this, you may find it harder to get a mortgage, or you might be offered less favourable terms.