Mortgage Stress Test

The mortgage stress test is the Central Bank of Ireland’s requirement that lenders model affordability not at the rate they are actually offering, but at a notional rate at least 2 percentage points higher — and, for some products, the lender’s standard variable rate plus a buffer. If the borrower’s net disposable income cannot service the loan at the stressed rate, the loan is not affordable in the Central Bank’s view, regardless of how comfortable it would look at the offer rate.

This is separate from the Central Bank’s loan-to-income (LTI) and loan-to-value (LTV) limits, which cap the size of the loan relative to income and the property value. The stress test caps how much of someone’s income can be devoted to the stressed monthly payment — most lenders work to a net disposable income (NDI) floor that varies by household composition.

In practice the stress test is the binding affordability constraint for many buyers, especially at the top of their LTI range. A loan that fits 4× income (the standard LTI ceiling) can fail the stress test if the borrower has high outgoings — childcare, an existing loan, a second mortgage — that erode the disposable income available.

Use the mortgage affordability calculator to model both the LTI and stress-test constraints, or the mortgage repayment calculator to see monthly payments at the offer rate versus a stressed rate.