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Mortgage stress testing

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  • 17-04-2018 8:55am
    #1
    D3V!L
    Registered Users Posts: 2,951 ✭✭✭


    Does anyone know what the guidelines are for banks stress testing you before offering a mortgage ?

    On a good month we're saving 25% of our total income on top of the rental of our house and other out goings. Would this be sufficient for the bank when it comes to stress testing us ? Also is there a formula or calculator online I could look at. We're looking at buying this time next year or sooner.


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    #2
    Zenify
    Registered Users Posts: 861 ✭✭✭Zenify


    D3V!L wrote: »
    Does anyone know what the guidelines are for banks stress testing you before offering a mortgage ?

    On a good month we're saving 25% of our total income on top of the rental of our house and other out goings. Would this be sufficient for the bank when it comes to stress testing us ? Also is there a formula or calculator online I could look at. We're looking at buying this time next year or sooner.

    With my application the bank checked if I could afford to repay the mortgage at current interest rates. To stress test they added 2% on top of current rates.


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    #3
    D3V!L
    Registered Users Posts: 2,951 ✭✭✭D3V!L


    Zenify wrote: »
    With my application the bank checked if I could afford to repay the mortgage at current interest rates. To stress test they added 2% on top of current rates.

    Did they take into account current rent payments etc or was the mortgage payment on top of that again ? Or was it if you were just paying the mortgage ?


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    #4
    CeilingFly
    Closed Accounts Posts: 3,378 ✭✭✭CeilingFly


    They look at affordability. Everything is taken into account, but primarily your income

    play around here

    http://www.amortization-calc.com/

    put in current interest rate you are looking at - many fixed rates are about 3% and if you think its a long term home, I'd certainly look at the 7 & 10 year fixed rates.

    Then put in a rate of 5.5% and see if you can afford those payments - that's a simple stress test and not much different to what the banks will do.

    300k over 30 years @ 5.5% = €1700/month
    @3% = €1265

    Banks will also look at other costs of home ownership. Buildings Insurance, life insurance, property tax etc and will possibly add in costs of having a child or two into the mix and also any potential employment promotion to come up with their final offer which will always be a max of the CB Loan to income rules of 3.5 times income.


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    #5
    Captain Flaps
    Registered Users Posts: 1,834 ✭✭✭Captain Flaps


    We just went through this with our broker, the way it was assessed was as follows:

    Current monthly rent + current monthly savings must equal or exceed bank's current variable rate + 2%

    So for example we went for KBC, current variable rate was 3.7% so stress that with +2% and we needed to be able to prove that we could meet a rate of 5.7% in a pinch.

    We weren't quite at that level, but we had a car loan that was being paid down and would be finished within a couple of months that would make up the difference, and we were also applying for a 5 year fixed rate using a special promo offer they had so our fixed rate for the next 5 years would be 3.35% which we were well over. Chat to a broker rather than approaching the banks directly, we had a few things to sort out and ended up delaying the application for a month to improve our chances, got the approval first time by following advice!


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    #6
    Zenify
    Registered Users Posts: 861 ✭✭✭Zenify


    D3V!L wrote: »
    Did they take into account current rent payments etc or was the mortgage payment on top of that again ? Or was it if you were just paying the mortgage ?

    They took into account the current rent payment. We were way over the line so they didn't spend much time on it.


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    #7
    D3V!L
    Registered Users Posts: 2,951 ✭✭✭D3V!L


    Zenify wrote: »
    They took into account the current rent payment. We were way over the line so they didn't spend much time on it.

    Good to hear thanks ;)


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    #8
    GingerLily
    Registered Users Posts: 4,767 ✭✭✭GingerLily


    Zenify wrote: »
    D3V!L wrote: »
    Did they take into account current rent payments etc or was the mortgage payment on top of that again ? Or was it if you were just paying the mortgage ?

    They took into account the current rent payment. We were way over the line so they didn't spend much time on it.

    Banks do more then one calculation, so if your savings plus rent is higher then your stressed payment you've proved repayment capacity, but they still will need to calculate your affordability.

    This looks at the % of your net income your payment and other debts are, and then how much you have left at the end of each month after your bills and commitments (e.g. Creche).


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