What is a mortgage affordability stress test?
A check of whether you could still afford the mortgage if interest rates were considerably higher than they are now — applied in addition to, and separately from, whether you can afford the payment today.
Why it exists. Lending decisions made at the bottom of a rate cycle become dangerous when rates rise. The rules introduced after the financial crisis required lenders to look beyond the introductory rate, because borrowers who could afford a two-year fixed rate and nothing after it were the source of large-scale distress.
How it works in practice. The lender assesses your income and committed expenditure, then tests the payment against a higher notional rate — historically the lender's reversion rate plus a margin, or a specified floor — to check the payment would still be sustainable.
What lenders actually count as expenditure, which surprises applicants:
Committed credit — loans, car finance, credit card balances, and buy-now-pay-later arrangements.
Childcare, which is frequently the largest single item and materially reduces borrowing capacity.
Household running costs, often using statistical benchmarks rather than your actual spending.
School fees, maintenance payments and pension contributions.
Dependants, as a per-person assumption.
Why two lenders give very different answers. Each applies its own income multiples, its own expenditure assumptions, its own treatment of variable income — bonus, commission, overtime, self-employment — and its own stress rate. A refusal from one is not a verdict on your finances.
How self-employment is treated: generally two to three years of accounts or tax calculations, with lenders differing on whether they use net profit or salary plus dividends, and typically averaging or taking the lower of the last two years.
What actually improves your position:
Clearing or reducing committed credit, which frequently increases borrowing capacity by several times the balance cleared.
Closing unused credit facilities, since available limits can count.
Avoiding new commitments in the months before applying.
Using a broker, since the variation between lenders is the main thing to navigate.
General information, not financial advice.