Mortgage stress test: what happens if EURIBOR rises?

When you take out a variable-rate mortgage, your payment moves with EURIBOR. Today the payment may be comfortable; in a few years it could be several hundred euros higher. A stress test asks one simple question: could you still afford the loan if things got worse?

This article explains what the bank checks, what the Bank of Slovenia’s rules say, where the bank’s paperwork shows the worst case, and how to run the test yourself.

What is a loan stress test

A stress test checks whether you could keep repaying the loan in worse circumstances. For a mortgage, the two most common scenarios are:

• a higher interest rate, because EURIBOR rises (for variable-rate loans),
• a lower income, for example during parental leave, sick leave or after losing a job.

With a variable rate, the total rate is EURIBOR plus the bank’s margin. The margin stays the same; EURIBOR changes. How EURIBOR has moved in recent years is covered in the article EURIBOR 2026.

Why it matters: the lesson of 2022 and 2023

The last few years showed clearly that interest rates do not stay put. The 6-month EURIBOR was still negative in January 2022 (-0.53%), turned positive in June 2022 for the first time in years, stood at 2.56% in December 2022 and reached 4.11% in October 2023. In less than two years it rose by more than four percentage points.

What that means for the payment: a new €150,000 loan over 25 years with a 1.5% margin would have had a payment of about €600 in early 2022, when EURIBOR was negative (if negative EURIBOR counts as 0%). The same loan taken out in autumn 2023 had a payment of about €931, more than €300 a month higher. Many people who borrowed at the lowest rates felt this in their monthly budget.

What the Bank of Slovenia requires

With its rules on lending to households (in force since 1 July 2023), the Bank of Slovenia sets a floor that every bank must respect:

• The payments on all loans must not exceed 50% of your net income when a new loan is signed.
• After the payments you must be left with at least a set amount, currently €745 a month, plus an extra amount for each dependent family member. The Bank of Slovenia reviews the amount every year.
• For a loan secured on property, it recommends that the loan should not exceed 80% of the property’s value when you buy a home you will live in, or 70% for other property.

How the maximum loan follows from these rules is explained in detail in the article How much can I borrow on my salary.

An important detail: for a variable-rate loan, the bank calculates the payment under these rules as if EURIBOR stayed at today’s level until the end of the loan. The Bank of Slovenia’s rules contain no mandatory add-on for a possible rate rise.

What European guidelines expect from banks

In its guidelines on loan origination, in force since 30 June 2021, the European Banking Authority (EBA) says that banks should also check worse scenarios when assessing creditworthiness: a lower income and, for variable rates, a higher interest rate.

The guidelines do not say how large that increase should be. Each bank therefore designs its own scenario. That is one of the reasons why two banks can approve different loan amounts for the same salary.

A stress test on paper: the ESIS

Before you sign a mortgage agreement, the bank must give you the European Standardised Information Sheet (ESIS). For a variable-rate loan without a cap, it must show what the payment would be at the highest borrowing rate of the last 20 years.

This is the most useful stress test you get from the bank, so do not skip it. For a sense of scale: since 2006, the highest monthly average of the 6-month EURIBOR was 5.22% (September 2008) and the lowest -0.54% (December 2021). The range is wide, and the rate can change a lot within a few years.

What to check in the ESIS

When you get the ESIS, look for these items above all:

• Type of rate: fixed, variable or combined, and how long the fixed part lasts.
• Reference rate and margin: for example the 6-month EURIBOR plus the bank’s margin.
• How often the rate is reset: with a variable rate usually every 3 or 6 months, depending on which EURIBOR it is linked to.
• The highest payment in the worst case, and whether the loan has a rate cap.
• APR: the annual percentage rate, which also includes the loan’s costs. You can see what affects it in the APR calculator.

If the highest payment in the ESIS is more than your budget could handle, that is a sign the loan is too large or that a fixed rate is the safer choice for you.

Example: how much the payment rises

Take a €150,000 loan over 25 years at a variable rate of 4% (for example EURIBOR 2.5% plus a 1.5% margin). This is how the monthly payment changes:

What this means for approval:

• For a €792 payment, the 50% rule requires a net income of at least €1,584. If the bank tested the payment at 6%, it would require an income of €1,933.
• Put another way: with a €1,000 payment you can borrow about €189,000 at 4%, but only about €155,000 at 6%. A bank that tests a higher rate will therefore lend you less.

Work out your own case in the loan calculator: simply raise the interest rate and see the new payment.

Fixed, variable or combined rate

• Fixed rate: the payment stays the same until the end of the loan, so a EURIBOR rise does not affect you. Whether it starts higher or lower than a variable rate depends on the market, so compare both. Its main advantage is predictability.
• Variable rate: the payment moves with EURIBOR, up and down. This is where the stress test matters most.
• Combined rate: fixed for the first few years, then variable. The stress test applies to the period after the fixed part ends. More in the article Combined interest rate.

Whichever you choose, it makes sense to check a lower-income scenario too, as it does not depend on the interest rate.

How to stress test a loan yourself

Do not rely only on what the bank approves. The test takes four steps and about ten minutes:

1. Work out the payment at today’s rate in the loan calculator.
2. Work out the payment at a higher rate: for example 2 percentage points higher, and at the highest rate shown in the ESIS.
3. Check your budget: enter your income and expenses in the credit capacity calculator. After the higher payment, you should still have enough for living costs and some savings.
4. Check a loss of income: what if the household lived on one income less for a few months? How many months of payments would your savings cover?

If the loan passes all four steps, it will most likely be sustainable in a bad year too.

The most common mistakes

• Counting only today’s payment. A mortgage runs for 20 or 30 years, and the rate can change several times in that time.
• Forgetting other obligations. The 50% rule counts the payments on all loans you are already repaying, such as a consumer loan or leasing.
• Ignoring rising costs. Food, energy and childcare get more expensive over time, while pay does not necessarily rise as fast.
• Having no savings buffer. Without savings for a few months of payments, even a short sick leave or a big repair can cause trouble.

What to do if the loan fails the test

• Borrow less, or wait until you have saved a larger down payment.
• Extend the repayment term, which lowers the payment but raises the total interest.
• Choose a fixed rate if what matters most is a payment that does not change.
• Build a buffer of several monthly payments before you sign.

Compare banks’ fixed and variable offers in the mortgage comparison.

This article is for information only and is not financial advice. The Bank of Slovenia’s rules and banks’ terms can change, so check the current terms with the bank and the figures in your ESIS before signing.