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Stress Test Calculator

Same NOI, same loan, rate stepped +1%, +2%, +3%. Shows where DSCR and ICR degrade to. Mirrors the underwriting test UK commercial lenders run before sanctioning a deal.

InputsST.01
Current pay rate (annual)6.50%
Term, years (for C+I service)20 yrs
Repayment basis
ResultLIVE
ScenarioRateAnnual serviceDSCRICR
Pending input
Enter NOI, loan and current rate to stress-test the cover ratios.

For illustrative purposes only. Not advice.

How to read the table

Each row shows the same loan at a different rate. DSCR uses the total annual debt service (capital + interest on amortising, just interest on interest-only). ICR uses interest only. The colour bands show pass (green), tight (amber) and fail (red) against the standard lender thresholds · DSCR 1.25x and ICR 140%.

  • Base + 1% · the typical lender stress for ICR underwriting.
  • Base + 2% · the upper end of standard lender stress, used on shorter fixes.
  • Base + 3% · the rate-shock scenario. Models the worst case most lenders will price for.

The methodology

For each stress scenario, the calculator does three things:

  1. Adds the stress amount (0, 1, 2, 3 percentage points) to the current pay rate.
  2. Recalculates annual debt service at the new rate. On C+I it uses the standard amortisation formula. On interest-only it is loan times new rate.
  3. Recalculates DSCR (NOI ÷ annual service) and ICR (NOI ÷ annual interest).

On interest-only, DSCR and ICR are the same number. On capital + interest, DSCR is lower because the service includes capital repayment as well as interest.

Worked example

£1.2m loan, 6.5% pay rate, interest-only, NOI £130k. At pay rate, annual interest is £78,000. ICR is £130,000 ÷ £78,000 = 167%. Clean.

At +1% (7.5% rate), annual interest is £90,000. ICR is 144%. Still inside 140%, just.

At +2% (8.5% rate), annual interest is £102,000. ICR is 127%. Below threshold. Lender will reduce loan or reprice.

At +3% (9.5% rate), annual interest is £114,000. ICR is 114%. Fails. The deal cannot survive a 3% rate move at this loan size. The lender will cut loan or step away.

What to do if the stress test fails

  • Cut the loan size. A lower loan reduces annual service and lifts cover ratios proportionally.
  • Lengthen the amortisation period. On C+I, a 25-year amortisation lowers monthly capital repayment versus 20 years. Cover ratios lift.
  • Switch to interest-only. Lower service, higher cover. But the capital is still owed at the end of the term.
  • Add covenant. A personal guarantee or parent-company guarantee can persuade a lender to accept a tighter stress on a strong borrower.

Reminder. For illustrative purposes only. These calculators are educational. They are not advice. Actual lender pricing and underwriting decisions depend on covenant, LTV, sector, property condition and dozens of factors a calculator does not see. Always validate with a regulated advisor before committing to finance.

Frequently asked

What is a commercial mortgage stress test?

A stress test re-runs the cover ratios (DSCR, ICR) at a higher interest rate than the pay rate to model rate-shock risk. UK lenders typically stress by 1% to 2% above pay rate for ICR underwriting. Stress testing at +1%, +2% and +3% shows you where the cover ratios break before going to a lender.

Why do lenders stress test?

Because commercial mortgages refinance every 5 to 10 years. The rate the deal closes at today is not the rate it will refinance at. Lenders stress test to check that the property or business will still clear cover when rates move up.

How much should I stress test by?

Match what your lender is going to do. Most UK clearing banks stress by pay rate plus 1% to 2% for ICR. Challenger banks and specialist lenders sometimes go further, particularly on shorter fixes. The +3% column on this calculator approximates the worst-case scenario most lenders will model.

What is a deal-breaker stress test result?

If DSCR falls below 1.10x or ICR falls below 125% at +2% stress, most UK lenders will reduce the loan size or step away. Below 1.00x DSCR on any scenario means the property or business cannot service the debt at that rate, and the lender will not underwrite the deal as proposed.

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