Under the Consumer Protection Code a lender is NOT required to stress test a home loan application for affordability if

• A. A borrower is known to them.
• B. Interest rate is more than 5%.
• C. Loan relates to a private principal residence.
• D. Interest rate is fixed for more than five years.

Answer: (D)

The main idea is that lenders must assess whether a borrower can afford a loan under scenarios that could make repayments harder (a stress test). There are specific situations where this assessment isn’t required, and long fixed-rate terms are one of them.

If the interest rate is fixed for more than five years, the borrower’s payments stay the same for a long period. That certainty reduces the risk of payment difficulty due to rate changes during that time, so the Consumer Protection Code allows the affordability stress test to be waived for that fixed period. The lender still considers affordability, but the explicit stress test isn’t required while the rate remains fixed.

The other scenarios don’t provide the same exemption. Knowing the borrower, or the rate being high, or the loan being for a private principal residence do not remove the obligation to assess affordability under stress testing in general. The fixed-rate exemption specifically explains why there’s no stress test required for a long-duration fixed-rate loan.