Glossary
Stress rate
The interest rate a lender uses to test whether the rent can carry the loan.
What it means
A stress rate is a higher-than-actual interest rate that lenders use for the interest cover test, to check the deal still works if rates rise. A common rule is the product rate plus two percentage points, often with a minimum. Five-year fixed rates are sometimes tested at the pay rate itself, which is why longer fixes can unlock bigger loans.
Worked example
ExampleA 5.25% two-year fix, rent of £9,600 a year and a 125% ICR requirement.
- Stress rate
- 5.25% + 2 = 7.25%
- Maximum loan
- £9,600 ÷ 1.25 ÷ 7.25% = £105,931
However much the property is worth, the rent supports about £106,000 of borrowing at this rate.
Information, not advice. Example figures are fictional and for illustration only.