The Bank of England’s Financial Stability Report published in July 2023 considered pressure on buy-to-let borrowers as mortgage deals were refinanced. It discussed the interest coverage ratio, which compares rental income with interest payments. A lower ratio indicates less room between the two measures.
The report projected an average increase in monthly buy-to-let mortgage repayments of around £275 by the end of 2025. It also examined a conditional scenario in which landlords absorbed all higher mortgage costs without passing any on through rents. Under that assumption, the share of mortgages with coverage below 125% was projected to increase from around 3% at the end of 2022 to just over 40% by the end of 2025.
The Bank discussed possible sales and changes in ownership, while warning that it was difficult to establish a comprehensive net balance of landlord exits and purchases. These were analysis and projections published in 2023, not verified outcomes for 2025 or evidence that every affected landlord made a loss.
A scenario is a question with assumptions
Our reading is that the conditional statement should remain attached to the projected result. Removing the assumption about rents changes the meaning of the calculation. It turns a test of financial pressure into an apparently unconditional prediction.
An interest coverage measure is also not the same as a complete profit calculation. It compares particular income and financing items, whereas a business review needs to consider the other relevant costs, the period involved and the owner’s circumstances. A national scenario cannot provide that individual assessment.
When reading a later article that cites an older forecast, ask whether the author has checked what actually happened. A projection’s target date passing does not transform it into an observation. New evidence is required to evaluate the outcome.
This archive therefore retains the report’s date, financing measure and assumptions. It is useful for understanding how the Bank framed the risks during the 2023 tightening cycle. It is not advice to sell, increase rent or change borrowing, and should not be used as a current affordability model.