If LTV determines how much a lender will lend you, DSCR determines whether they think you can pay it back.
Debt Service Coverage Ratio is your Net Operating Income divided by your annual mortgage payments. A DSCR of 1.25 means your property generates 25% more income than it needs to cover the mortgage. A DSCR of 1.0 means it exactly covers the mortgage with nothing left over. Below 1.0 means the property cannot afford its own mortgage.
UK lenders typically want a DSCR of at least 1.25 for BTL properties and 1.3 to 1.5 for commercial. This gives them a buffer. If interest rates rise or your costs increase, there is still enough income to cover the mortgage.
For a Portsmouth BTL with an NOI of £7,850 and annual mortgage payments of £6,000, your DSCR is 1.31. That is above the 1.25 threshold. Most lenders would approve this.
But if interest rates rise and your mortgage payment goes up to £7,200, your DSCR drops to 1.09. That is below the threshold. The lender might not let you remortgage or extend the loan.
DSCR is not just a lender metric. You should track it on every property. If your DSCR drops below 1.3, your property has no buffer against rising costs or interest rates.
The formula
DSCR = NOI / Annual Debt Service
Why this matters
DSCR is the safety metric. A ratio above 1.25 means your property can afford its mortgage with room to spare. Below 1.2, any cost increase becomes a problem. Track this number quarterly.
Property maths is not optional. If you want someone to run the numbers with you, Xelox Properties can help. We cover Portsmouth, Hampshire, and the South Coast.