Debt service coverage ratio (DSCR)
An indicator used by banks specialised in buy-to-let to measure a property's ability to self-finance its debt. Calculated by dividing annual gross rents by annual debt service (instalments + charges). A DSCR above 1 means the property generates enough income to cover its loan. Some banks use it as the primary criterion instead of the standard debt ratio.
Key points
- A DSCR above 1 means the property self-finances without any cash contribution from the investor.
- Some specialist banks use it as the primary criterion instead of the standard debt ratio.
- It is calculated by dividing annual gross rents by annual debt service.
- A DSCR below 1 indicates a positive monthly cash effort required from the investor.
Frequently asked questions
How do banks specialised in buy-to-let use the DSCR?
These banks analyse the property as a standalone economic unit: if the DSCR exceeds 1, they consider the loan covered by the property's own income, independently of the investor's personal income. This allows them to finance multi-asset investors whose standard debt ratio would exceed the usual 35% threshold.
What is the difference between DSCR and the standard debt ratio for buy-to-let?
The standard debt ratio relates all loan charges to the borrower's personal net income. The DSCR focuses solely on the relationship between the property's rents and its own debt service. An investor can have a DSCR above 1 on a property while having an overall debt ratio above 35%, depending on the calculation method used by the bank.
How can the DSCR of a buy-to-let file be improved?
Several levers are available: increase the down payment to reduce the borrowed capital and hence the instalments, extend the loan term to lower the annual debt service, target a property with a higher gross rental yield, or negotiate a lower rate with the bank. The broker models several scenarios to reach the DSCR threshold required by the target institution.
In practice
A property generates €12,000 in annual gross rents. The loan instalments amount to €900 per month, i.e. €10,800 per year. The DSCR is 12,000 / 10,800 = 1.11, meaning the property covers 111% of its debt service.
Official sources
- Housing and financing information · ANIL
- Mortgage credit (official guide) · Service-Public.gouv.fr