Mortgage Affordability and Stress Testing Questions

B

Betelgeuse

Registered User
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Hi all,

I’ve been preparing to apply for a mortgage for the past few months and have been doing as much research as possible as I want know both the product and the application process inside out before I make a formal application.

I’m currently trying to analyse my net monthly income in terms of affordability and stress testing from the perspective of a bank. I’ve found a good deal of information both here and on other online resources, but have been unable to confirm a few finer details. Perhaps the community here may be able to help?

I’ve read that banks prefer that your monthly mortgage repayment makes up no more than 35% - 40% of your net monthly income:
  • Is this mortgage payment only, or monthly repayments on all loans/credit cards etc?
  • Is this a standard mortgage payment or a stressed mortgage payment?
  • Is 35% a good rule of thumb figure to use for my own calculations?

With regard to stress testing payments, I’ve read that a bank will typically stress the mortgage repayment at 2% above their standard variable rate and then analyse what net monthly income remains dependent on an individual’s situation. i.e. they have a figure that they want to see left over once they subtract a stressed mortgage payment along with any other loan payments from your net monthly income.

Figures I have seen mentioned are a remainder of €1,300 for a single person, €2,000 for a couple, and then an additional €250 for each dependent:
  • Am I correct in assuming that this figure is supposed to be representative of typical household living costs, i.e. bills, fuel and groceries?
  • Is this figure inclusive of compulsory mortgage related expenses, i.e. mortgage protection and home insurance, or should they be factored in separately?
  • Are these good rule of thumb figures to use for my own calculations?

Finally, have I missed anything here? Is there anything else that I should be considering when crunching my own numbers?

Many thanks.
 
You've a pretty comprehensive summary there already. This is all anecdotal but I've heard that AIB stress test at 6%, and require 2k left over for a couple. Some other banks might increase this to 2.5k, but at rate +2%.

The 35% is mortgage only, but other repayments will factor into affordability. Be prepared to demonstrate affordability, either via savings or current rent payments.

The CBI loan-to-income rules probably have as big an impact as any stress testing a bank would do, so don't overlook them.

The only thing that you've left out that might influence is your age. If you're over 40 it might impact the maximum term you can apply for.

Have a look around the following UB site which might give some additional details, but I think you've got it all already.

https://www.ulsterbankintermediaries.ie/lending-criteria

My advice - Don't over analyse it. Keep your credit record clean, avoid dipping into any savings you're using to demonstrate ability to pay, and don't have frequent gambling transactions on your statements! Pick the best value mortgage provider and apply there first.

Best of luck.
 
Many thanks for the detailed reply and link.

Yes, I have separate calculations for the CBI rules, and unfortunately they probably restrict me more than stress testing alright.

Though that may prove to be no bad thing!
 
The stress testing can throw up some ludicrous results.

I have a mortgage at ECB +0.5% with another institution.

My bank, BOI, insisted on stress testing me at their investment mortgage rate (circa 5%) PLUS 2%, i.e. 7%!
 
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