What is a Debt Service Coverage Ratio (DSCR)?

Definition: The Debt Service Coverage Ratio (DSCR) is a financial metric used by lenders to determine whether a property's rental income is sufficient to service its total debt obligations, calculated by dividing annual net rental income by annual debt payments (principal and interest). A DSCR of 1.0 means rental income exactly covers debt payments; most HMO lenders require a minimum DSCR of 1.25–1.45, meaning rental income must be 25–45% higher than the total mortgage cost. For example, if annual debt payments on an HMO total £18,000, a lender requiring 1.35x DSCR would need the property to generate at least £24,300 in annual rent. DSCR differs from the more commonly used Interest Coverage Ratio (ICR) in that it accounts for both interest and capital repayments, making it a more conservative test. It is particularly relevant in commercial HMO mortgages and development finance. A strong DSCR gives lenders confidence in cash flow resilience during voids or rate increases, and borrowers with DSCR well above the minimum threshold may access higher LTV products or more favourable pricing.