A stress test is the term given to the process by which lenders assess the sustainable affordability of a loan to a buyer. Required by law to undertake such affordability tests as a result of legislation following the 2008 credit crunch and housing crisis, stress tests are there to protect the borrower (and the lender) for entering into ill-conceived or risky mortgage arrangements.
The standard mortgage stress test will consider household income, monthly outgoings, number of incomes in the household and the likely impact on affordability of rises in interest rates, etc. The buy to let borrower is usually relying in large part on income derived from the letting of the property and so a buy to let stress test will usually focus on the rent receivable and the interest payable.
In the past, a standard buy to let stress test has required that rent received be 125%, thus allowing a margin for additional costs and to build a buffer in the event that the property becomes vacant for a short period of time. In addition, a notional rate of interest will be assumed (higher than the existing rate) so as to allow for a cushion in the event that interest rates rise in the future.
In large part due to recent changes in the tax structures applied to buy to let income, lenders in this market have been keen to revise their stress tests to take account for the additional cash flow burden put upon the high rate tax payer with a buy-to-let mortgage and the increased likelihood that mortgage rates will increase in the future.
Some lenders have already increased their stress test margin to 145% rental cover and 5.5% notional interest rate, thus effectively reducing loan to value and limiting an investor’s buying power.
The good news is that, at present, borrowers financing their buy to lets through limited companies will not be hit by the Government’s new tax rules. Therefore, lenders are not necessarily bringing the increased stress test across to their corporate mortgage rates.
To speak to a mortgage adviser contact us on 01628 507477.
Download our Free First Time Buyers Guide
Recent posts
We look at how to get the best Buy to Let mortgage rate, what's in store going forward, and options as a landlord with increasing costs.
UK mortgage rates following Trump’s Tariffs
9 days ago
Throughout this past week, lenders have continued to reduce their mortgage rates giving borrowers in the UK some welcome news following the change in global tariffs under US President, Donald Trump.
Effective ways to relieve stress
9 days ago
Did you know that buying a house, or relocating is in the top 10 most stressful life events?
Stress of course is an unavoidable part of life and there are many reasons why people experience stress, not just buying a house!
There are lots of effective ways to manage and reduce stress, check out our tips to help you.
The most inexpensive areas for first time buyers
22 days ago
With the stamp duty relief ending in England and Northern Ireland, we have listed the top 10 cheapest areas for first-time buyers as published by Rightmove.
Tips to help you get onto the property ladder
22 days ago
Are you looking to purchase your first home but unsure where to begin? Here are some tips to get you started.
Choosing which fixed rate to go for has been a dilemma for many of our clients so far this year. There really isn’t a right or wrong answer, but below we will look into the pros and cons of a two-year and five-year to help you make the right decision for you.
Best UK Mortgage Rates this Week
18 Mar 2025
Here are the lowest fixed mortgage rates of the week, available to first-time buyers, home movers, buy-to-let, and those remortgaging.
Call us for more information: 01628 507477 or email: team@mortgagerequired.com.
Stamp Duty Rush as Deadline Looms
17 Mar 2025
According to Rightmove, a whopping 500,000 UK homebuyers are rushing to finalise their home purchase before the new Stamp Duty rules change in April.
More information
Trusted by
