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Home > Financial Stability > Interest rate stress tests

Interest rate stress tests

​Prevailing FPC recommendation on mortgage affordability tests

When assessing affordability in respect of a potential borrower, UK mortgage lenders are required to have regard to any prevailing FPC recommendation on appropriate interest rate stress tests. This requirement is set out in FCA rule MCOB 11.6.18(2).

In June 2017, the FPC made the following recommendation:

‘When assessing affordability, mortgage lenders should apply an interest rate stress test that assesses whether borrowers could still afford their mortgages if, at any point over the first five years of the loan, their mortgage rate were to be 3 percentage points higher than the reversion rate specified in the mortgage contract at the time of origination (or, if the mortgage contract does not specify a reversion rate, 3 percentage points higher than the product rate at origination). This Recommendation is intended to be read together with the FCA requirements around considering the effect of future interest rate rises as set out in MCOB 11.6.18(2). This Recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum.’

This page will be kept updated to reflect any changes to the FPC’s prevailing recommendation.