Stress-Test Your Rental Before the Rate Does It for You
Every rental looks fine on the day you buy it. The rate is the rate you were quoted, the rent is the rent in the listing, and nothing has broken yet. A stress test asks the less comfortable question: what happens when those three things stop being true?
It takes half an hour and one set of numbers. And it is far better to find out on a spreadsheet than on a bank statement.
The property
One ordinary buy-to-let, used for every scenario below:
| Input | Figure |
|---|---|
| Purchase price | £180,000 |
| Loan (25% deposit), interest-only | £135,000 |
| Rent | £1,150 a month |
| Voids allowance | 5% |
| Management | 10% of rent collected |
| Repairs allowance | 8% of rent collected |
| Other costs (insurance, service charge) | £45 a month |
Gross yield is 7.67% — a respectable number. After voids, management, repairs and other costs, the property earns £850.85 a month before the mortgage. That figure, the net operating income, is the one the whole test hangs on. If you are unsure how it is built up, how to calculate rental yield walks through it.
Test 1: the interest rate
The rate is the input most likely to move and the one you control least. Here is monthly cash flow at four rates:
| Rate | Interest-only payment | Monthly cash flow | Repayment payment (25 yrs) | Monthly cash flow |
|---|---|---|---|---|
| 5% | £562.50 | £288.35 | £789.20 | £61.65 |
| 6% | £675.00 | £175.85 | £869.81 | −£18.96 |
| 7% | £787.50 | £63.35 | £954.15 | −£103.30 |
| 8% | £900.00 | −£49.15 | £1,041.95 | −£191.10 |
Three percentage points take this property from £288 a month to losing money. The yield did not change at all. That gap — yield steady, cash flow collapsing — is exactly why cash flow has to be watched separately from yield.
Two numbers are worth writing down from this test:
- The break-even rate. On interest-only, this property breaks even at 7.56%. Above that, you are paying to own it.
- The rate on repayment. The same property on a repayment mortgage goes negative somewhere between 5% and 6%. Repayment builds equity, but it is cash you do not have each month.
Test 2: the rent
Flip the question round: at each rate, what rent do you need just to break even?
| Rate | Break-even rent (interest-only) | Headroom below £1,150 |
|---|---|---|
| 5% | £780 | £370 |
| 6% | £924 | £226 |
| 7% | £1,069 | £81 |
| 8% | £1,213 | none — rent is £63 short |
The headroom column is the real measure of safety. At 5% the rent could fall by nearly a third before the property cost you anything. At 7% a modest reduction to re-let would wipe it out. If local rents are softening, how to increase rent and reducing void periods are the two levers you actually control.
Test 3: the things that break
Rate and rent move slowly. Shocks arrive all at once. Starting from the 5% position — £3,460.20 of cash flow over a year — here is what three ordinary bad events do:
| Event | Cash flow for the year | What was lost |
|---|---|---|
| Nothing goes wrong | £3,460.20 | — |
| Two empty months, plus £450 of void costs (council tax, utilities, re-letting) | £1,690.00 | Half the year's profit |
| A £3,000 boiler replacement | £460.20 | Almost all of it |
| Rate at 7% and one empty month (£225 void costs) | £158.00 | A year's work for £13 a month |
None of these is unusual. A boiler, a void and a rate rise are not a run of bad luck — over a ten-year hold, you should expect every one of them at least once. The void periods guide explains why an empty month costs more than a month's rent.
What a stress test is for
The point is not to frighten yourself out of owning property. It is to know, in advance, the answers to three questions:
- At what rate does this stop working? Compare it to the rate you are likely to be offered when your fix ends. See when your fixed rate ends.
- How far can the rent fall? Compare the headroom to what similar properties are actually letting for now, not last year.
- How big a shock can you absorb? This is a question about cash, not about the property.
The reserve that answers question three
A cash reserve turns a shock from a crisis into an inconvenience. A common starting point is three months of the property's fixed outgoings — the mortgage and the costs that do not stop when the tenant leaves.
For this property at 5%, that is £1,822.50. Enough to cover a void or most of a boiler without borrowing. Held separately, so it is not quietly spent.
Landlords with several properties often hold a reserve per property until the portfolio is large enough for one shared fund to cover a bad event at any single address.
Running it on your own properties
- Put your real figures in: rent, loan, rate, and honest allowances for voids and repairs — not zero.
- Increase the rate in one-point steps until cash flow turns negative. Write down that rate.
- At today's rate, reduce the rent until cash flow hits zero. Write down that rent.
- Knock out two months' rent and add a £3,000 repair. Is the year still positive?
- Compare the answers to your reserve and your fix end date.
The free Rental Yield & Cash Flow Calculator runs steps 1 to 3 in the browser as you type. For a whole portfolio, the tracker does it per property and totals it.
Frequently asked questions
What voids and repairs allowances should I use?
Your own history, if you have it. Without it, 5% for voids and 8–12% of rent for repairs are common starting points, with the higher end for older properties. Zero is the one figure that is always wrong.
Does a stress test include tax?
These figures are before tax. For higher-rate taxpayers, the restriction on mortgage interest relief means a rate rise costs more after tax than before. See mortgage interest and your tax bill.
How often should I rerun it?
Whenever an input changes: a new rate, a new rent, a new tenant, a major repair. At minimum once a year, as part of an annual review.
My property already fails at today's rate. What now?
Find which lever moves the most: rent, the loan balance, the rate, or the running costs. Sometimes the honest answer is that the property is a capital-growth bet being subsidised each month — which can be a reasonable choice, as long as it is a deliberate one.
Know your break-even before the market tells you
The Rental Property Tracker calculates cash flow, net yield and break-even rent for every property from the figures you already record, so a rate change shows up as a number rather than a surprise. Up to twenty properties, $27 once.
General information, not financial advice. The worked example is illustrative, uses round figures and excludes tax. Run the numbers on your own properties and take advice before refinancing, buying or selling. Last reviewed September 2026.