This term is usually used to refer to mortgages secured against Commercial Investment Properties. Commercial Mortgages need to be supported by the income earned by the asset. The lender will deduct the operational expenses from the Gross Income to calculate the Net Income of the asset. It is the Net Income which the lender will then stress test against internal covenants (Stress Rate, Amortisation Profile) to determine what level of loan they can support. For example: Gross Income = £ 100k, Lender Gross to Net = 85% (£ 85k), Stress Rate = 6.5%, Rental Covenant = 125%, Amortisation Profile = 15 years, therefore Possible mortgage = £ 650,513.
