How DSCR and ICR actually work, explained with real Bournemouth examples
Every lender quote on a commercial investment mortgage tests one of two cover ratios, ICR (interest cover ratio) or DSCR (debt-service coverage ratio). Get the test wrong and the offer prices down at credit committee, or falls over completely. This piece walks through both ratios using real-shape Bournemouth investment deals.
Every lender quote on a commercial investment mortgage tests one of two cover ratios. ICR measures gross rent against interest only. DSCR measures net operating income against the total monthly debt-service cost. Most single-asset, interest-only commercial investment mortgages run ICR. Most amortising portfolio facilities run DSCR.
The standard thresholds
| Lender desk archetype | Test | Threshold | Stress applied |
|---|---|---|---|
| High-street commercial (NatWest, Lloyds) | ICR | 150–160% | pay rate + 2.0% |
| Challenger investment desk (Shawbrook, Cambridge & Counties) | ICR | 140–150% | pay rate + 1.5–2.0% |
| Specialist semi-commercial (InterBay Commercial, YBS) | Blended ICR | 140–145% | pay rate + 1.5% |
| Portfolio facility (Shawbrook, Cynergy Bank) | DSCR | 130–140% | pay rate + 1.5% |
The stress is the part borrowers underestimate. A 7.5% pa pay rate stressed at +2.0% gives a 9.5% notional, and the cover test is run on the higher number.
A common mistake at indicative-terms stage
Borrowers model their target loan against the headline LTV ceiling (say, 75%) without running the cover test. Then they find the cover test caps the loan well inside that. Model the cover test first and the LTV ceiling second.
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