Mortgage Stress Tests: What Banks Actually Check
When you apply for a home loan, the bank does not ask "can you afford the current rate?" — they ask "can you afford the rate if it goes much higher?" This stress test is the central safety check of NZ mortgage lending, and it explains why your borrowing capacity is usually less than you expected.
What stress testing is
A stress test calculates your repayment using a "stress rate" rather than the actual rate you would be paying. As of 2026 the stress rate sits around 8 to 8.5 percent across most major banks, regardless of whether the loan you are applying for is at 5.5 or 6 percent.
The bank then checks: with the higher stress-rate payment, do you still have enough income to cover your living expenses, other debt commitments, and a buffer for the unexpected?
Why the stress rate is so high
The RBNZ wants banks to lend prudently — borrowers should be able to absorb a rate rise without distress. The stress rate sits 2 to 3 percentage points above the typical headline rate to provide that buffer.
It is not a forecast of where rates are going. It is a margin of safety.
What gets included in the test
The bank stress-tests:
- Your new mortgage at the stress rate
- All your other existing debt, including credit card limits (not balances), HP, personal loans, BNPL commitments
- Your declared living expenses, plus a bank-applied minimum if your declared expenses look unrealistic
Against:
- Your assessable income (the gross-discounted version we covered in a previous post)
If the result is positive, you pass. If not, you can either reduce the loan amount, increase your income, reduce other debt, or in some cases reduce credit card limits.
Why two borrowers with the same income get different answers
The big drivers of difference in stress-test outcomes are:
- Credit card limits (a 20,000 dollar limit can cost 80,000 to 100,000 of borrowing capacity)
- BNPL and HP balances
- Other dependents (each dependent adds to the assumed expenses)
- Income composition (commission and contract income is discounted)
- Property type (investment property has its own rules and DTI restrictions)
DTI restrictions
The Reserve Bank introduced Debt-to-Income (DTI) restrictions in 2024. These limit the proportion of high-DTI lending that banks can do — generally over 6x income for owner-occupiers and 7x for investors. DTI sits alongside the stress test, not instead of it. You need to pass both.
What you can actually do
If your stress test is failing or borderline:
- Close unused credit cards — almost always the highest-impact move
- Pay down BNPL and short-term debt before applying
- Reduce or close revolving credit and overdraft facilities you do not use
- Wait until you have more solid income history (especially for self-employed or commission-heavy roles)
- Consider a longer loan term (lower monthly payment, but more total interest)
Sometimes the right answer is to wait three months, tidy up the financial profile, then apply with a much stronger result.
Get advice before you apply
The stress test rules look mechanical but they have significant strategic implications. Talk to SMS Loans before you submit any application — we will tell you exactly what your stress-test outcome is likely to be and what to clean up first to get the strongest result.