Stress Test

Yorkshireman79

Hi,
Hope you can help.

We have just accepted an offer on our house. £212k.

Current mortgage £122k.

We would like to offer on a house priced at £375k


We have a DIP in place but I have just read that the bank will perform a stress test on the mortgage payments of up to 10%? Is this correct?

That would take our calculated payments from 1400 to 3000 based on 10% LTV.

Balance of equity funds the move and clears 10,000 of debt. Equates to 300 per month

We have a good income of £5600 a month after tax.

I have a car lease for 450 per month. No other debt apart from above.
Perhaps 1200 per month for all other standard costs and food.

Savings of 12k.

Will the bank really stress test to 10%?

Thanks

LRmortgage

If you already have a DIP in place, based on accurate figures entered then in theory you have already met the affordability / stress test of that lender.

Of course, they will want to verify documents match what you have told them and run some further checks, but should be ok based on the DIP.

Yorkshireman79

Ok, thank you for the response.

I was just surprised to read a possible 10% rate stress test. I'd projected a 6% based on average historical rates over the last 20 years.

AnotherJoe

Where did you read 10%?

Yorkshireman79

AnotherJoe wrote: »

Where did you read 10%?

It was on another thread somewhere. May have just been conjecture.

LRmortgage

Most lenders are indeed stressing at around 6 - 7% in the background but this is built into their affordability calculators and takes into account many other factors such as commitments, level of income and debt etc.

Most of the affordability calculators provided by individual lenders are very accurate if used properly.

ACG

I heard 6-8% in the main but there are some lenders who we stress testing 10% as historically their products were priced at 9.9% but those lenders are in the minority and if you are fairly straight forward that will not be relevant to you.

In any event, you have passed the DIP so affordability has been stress tested.

Thrugelmir

Yorkshireman79 wrote: »

We have a DIP in place but I have just read that the bank will perform a stress test on the mortgage payments of up to 10%? Is this correct?

Lenders stress test on their SVR plus a %. The % being under regulatory guidance.

amnblog

The basic rules say...

When assessing affordability, mortgage lenders should apply an interest rate stress test that assesses whether borrowers could still afford their mortgages if, at any point over the first five years of the loan, Bank Rate were to be 3 percentage points higher than the prevailing rate at origination.

Therefore, the SVR would need to be 7% now to make a stress test rate 10%.

5 year fixed rates are a useful hedge against stress tests - because the rates on these products are fixed, the stress test rate is equivalent to the offer rate.