Stress Test Causing Chaos In The Buy-To-Let Market

Host: WIS Group Representative

Introduction

Host:
As you know, interest rates have been increasing — if not skyrocketing — over the last few weeks. Banks have responded to this by making affordability calculations more difficult for property landlords by increasing something called the stress test.

This certainly isn’t good news for landlords.

In today’s video, we’ll talk about:

• What a stress test actually means,
• What impact it could have on you as a property landlord, and
• Strategies you can follow to minimize its impact.

About WIS Group

Host:
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Q&A

1. What is a stress test?

Host:
A stress test is a calculation banks use to see whether you can still afford your mortgage if interest rates rise further.

Even if you’re currently borrowing at a lower interest rate, the bank looks at a worst-case scenario.

For example:

If you’re borrowing at 6%, the bank might calculate what would happen if rates rose to 7.5% or even 8.5%.

This helps them determine whether your rental income would still cover your mortgage payments in tougher conditions.

In simple terms, it’s a “what if” analysis to make sure you can handle potential rate increases.

2. How does the stress test affect landlords?

Host:
Let’s look at some examples to make this clearer.

Example 1 – Past Stress Test Levels

If you borrowed £100,000 in the past, banks usually stressed your mortgage at 5.5%:

• Basic taxpayer: expected rent = £573/month
• Higher-rate taxpayer: expected rent = £665/month

Example 2 – Moderate Increase (7%)

Some banks now stress test at 7%:

• Basic taxpayer: expected rent = £729/month
• Higher-rate taxpayer: expected rent = £845/month

Example 3 – Extreme Case (8.49%)

One bank is even stress testing at 8.49%:

• Basic taxpayer: expected rent = £884/month
• Higher-rate taxpayer: expected rent = £1,025/month

That’s a massive jump from the earlier £665 figure — showing just how much harder it’s becoming to meet affordability criteria.

3. What strategies can landlords use to manage stress test challenges?

Host:
Here are six practical tips you can follow to help reduce the impact of stress test increases.

Tip 1: Remortgage Early

Some lenders now allow you to remortgage up to six months in advance (previously it was three months).

It’s a good idea to take advantage of this while some lenders still stress test at 5.5%.

If your remortgage is due within six months, act now before more lenders increase their rates.

Tip 2: Review and Increase Rent

Rental markets have risen significantly in recent months — partly due to these stress test changes.

If your rent is below market level, consider increasing it to strengthen your affordability position.

Tip 3: Consider Longer-Term Deals

Banks tend to be more relaxed with longer-term fixed deals, which can help with stress testing.

However, these deals often include early repayment charges (ERCs), so make sure you understand the penalties before committing.

Tip 4: Use Spare Cash to Reduce Your Mortgage

If you have spare funds available, consider paying down part of your mortgage.

This reduces your loan balance and can make it easier to meet stricter stress test requirements.

Tip 5: Look into Variable Rate Mortgages

Some banks are less stringent with their stress testing when it comes to variable rate mortgages.

A variable rate may give you more borrowing flexibility compared to a fixed-rate product.

Tip 6: Seek Professional Advice Early

If your current mortgage deal doesn’t end for another year or two, it’s still wise to speak to an advisor now.

Consult your bank or an independent mortgage broker for guidance.

The stress test is likely to remain for the short term while interest rates stay high.

Planning ahead helps you prepare and make informed decisions when your renewal time comes.

Conclusion

Host:
The stress test is here to stay — at least in the short run — and it’s already making life tougher for landlords.

But by planning early, reviewing your rent, and seeking advice, you can minimize its impact and stay ahead of the curve.

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