Mortgage affordability checks are an important part of the homebuying process. They’re a way for the lender to determine the maximum amount you can borrow and what they feel is a sustainable monthly repayment plan.

Learning how a mortgage affordability check works can help you understand how the lender assesses your circumstances. In this guide, we’ll explore what mortgage affordability checks are, what affordability checks are no longer required and how lenders use them today to ensure that your mortgage payments are manageable.

How Do Lenders Work Out Your Affordability for a Mortgage?

Every lender takes its own approach when determining how large a mortgage you can afford. One popular technique is to use an income multiplier as an indicator. The majority of lenders apply an average multiple of 4 - 4.5x your salary/income based on self-assessment when considering loan applications to determine your maximum borrowing. There may be some exception to the rule whereby some lenders will only offer 3x your income while others will potentially extend up to 5x or 6x the value of your earnings.

Bear in mind that your maximum borrowing does not provide a comprehensive account of your financial status. To gain insight into how much you can manageably allocate towards mortgage payments each month, lenders conduct additional assessments that consider other expenses and evaluate disposable income. This gives them an in-depth understanding of what's realistic for you financially when it comes to repaying a loan.

You can use our handy how much can I borrow calculator or our more detailed affordability check mortgage calculator to determine how much you can potentially borrow on your mortgage. You can also use this mortgage repayments calculator to see an estimate of what your repayments could be each month.

Is Your Salary the Only Type of Income that Can Be Taken into Consideration?

Stamp duty

In addition to your salary or consistent income from self-employment, potential lenders can take other forms of income such as commission, bonuses, or overtime into account. However, these sources may not all be treated equally. For example, bonuses are generally assumed to be a one-off payment and won’t be factored into affordability checks with the same weight as your annual salary. Lenders prefer income that's likely to continue in a consistent way to that which could stop or change anytime.

Affordability Checks and Mortgage Type

Depending on the kind of mortgage you're applying for, the way in which lenders check mortgage affordability can vary.

Here are a few different examples:

  • Commercial mortgages - when applying for a commercial mortgage, there's no set formula as the loans are granted on a case-by-case basis. An experienced broker can help ensure that you're properly equipped with all the essential components for a successful application. Every lender has their own criteria when considering mortgage affordability and having expert advice on hand can help streamline this process
  • Buy-to-let mortgages - when you're looking to invest in a buy-to-let property, the size of your income is not as important. The anticipated rental earnings must be 25% - 30% higher than your mortgage payments and this is usually considered more important when applying for a loan. You may also need to have sufficient savings or capital available so that you can put down a large deposit
  • Bridging mortgages - when it comes to bridging loans, lenders prioritise your assets as security rather than looking at income alone. The value of the asset and how you plan to pay back the loan are key factors in assessing affordability. Therefore, having a clear exit strategy is essential for successful bridge financing
  • Adverse credit mortgage – adverse credit mortgage lenders tend to have more flexible affordability criteria than high street lenders as they assess applications on a case-by-case basis, rather than being automated. This means they’re often more likely to be able to consider your application but will probably offer higher rate products

What Mortgage Affordability Checks Carried Out if You’re Self-Employed?

If you're self-employed, lenders will apply an income multiplier much like they would for a self-employed applicant. Lenders will ask for proof of income such as accounts or a tax return. They may also want to see evidence that your business is consistent and has been in operation for some time. Typically, mortgage lenders require at least 1 - 2 years' worth of accounts to prove your income is consistent and reliable.

Lenders can also take into account any assets or savings you have, along with any other sources of income.

An independent, specialist mortgage broker such as John Charcol can help you to find a lender that can consider different income sources for self-employed applicants.

Other Eligibility Criteria that May Affect Your Mortgage Application

While affordability consists of a large part of the mortgage application process, there are other factors that lenders consider when deciding if you're eligible for a mortgage - including the following:

Your Credit Score

Your credit score and history are incredibly important factors when applying for a mortgage since it indicates to lenders how likely you are to pay back money loaned to you. Mortgage lenders look at your credit history, often including your credit scores and reports from each of the 3 major credit reporting bureaus: Equifax, Experian and TransUnion. They also look into a range of information such as open accounts, payment history and total debt relative to income. Generally, the higher your credit score, the better your chance of being approved for a loan with competitive interest rates.

Good credit is essential when applying for a mortgage and securing favourable terms. If your credit score isn't quite up to scratch, you should aim to improve it over time by:

  • Registering on the electoral roll
  • Making payments on time
  • Reducing your existing debt
  • Checking your credit report for errors and disputing any inaccuracies

Your Outgoings

Another important factor that lenders take into account is your outgoings. Lenders want to make sure you have enough money coming in every month to cover your essential outgoings and the mortgage payments.

Depending on your situation, lenders will consider factors such as the following:

  • Your debt-to-income ratio - this is the percentage of your monthly income that goes towards paying off debt. The calculation involves dividing total monthly debt cost by gross monthly income to determine an individual’s ratio. You can calculate this yourself, using common payments such as credit cards, store cards, personal loans/student loan repayments, rent payments, mortgages, child support contributions and car finance agreements. Working out your DTI (debt-to-income ratio) is essential when attempting to secure a loan if you have high amounts of debt. Ideally, the DTI should remain between 20% and 30% for the best interest rates. However, some lenders will grant competitive rates even with higher ratios. If your DTI goes above 50%, it may be in your best interests to pay off existing debts first before applying for a mortgage
  • Regular monthly costs - this is by no means a comprehensive list, however some examples of expenses that can be taken into account include regular payments towards mobile phone contracts, utility bills, streaming services like Netflix, gym memberships, subscription services like Amazon Prime and other types of memberships or subscription-based services
  • Daily cost of living – some lenders will consider your daily outgoings when assessing your affordability by using the ONS stats for a household of your size and cross-referencing this with your bank statements

If you have substantial existing debt or outgoings, this can be a cause for concern and could put you at risk of being rejected for a loan. To increase your chances of success, you should try to reduce outstanding debt before applying for a mortgage and reduce spending. Cancel unnecessary memberships or subscriptions, pay down any credit cards and try to avoid taking out any other loans in the months leading up to your application.

What About Gambling?

Gambling will also be taken into account when applying for a mortgage and lenders will make an assessment of your spending habits to see if you've been gambling excessively. If so, this could put your application at risk of being rejected as it shows a lack of financial responsibility and stability. This type of activity is seen as very risky by lenders and they may see this as a red flag when making their decision.

Your Employment Status

Lenders will also take into account your current employment or self-employment status and look at wage slips or self-assessments. They want to make sure that you have a steady source of income each month and are able to afford the monthly mortgage payments.

If you're self-employed, lenders may ask for additional documents such as tax returns or bank statements to prove that you have enough income. They'll also likely want a few years' worth of accounts from self-employed applicants to show that your business is successful and can continue to support you financially. Stability in employment is key and lenders may be hesitant to approve a loan if the source of your income is uncertain.

Are Remortgage Affordability Checks Different?

When it comes to remortgaging, there are a few extra considerations that you must take into account. Alongside evaluating the usual criteria, lenders will also look at these details when checking your affordability for a remortgage:

  • The value of your home and the equity you have in it
  • Your capacity to pay the relevant fees, such as application costs, appraisals, and conveyancer's charges
  • Any changes to your credit score
  • Whether there's an early repayment penalty associated with your current mortgage

Affordability checks for remortgaging may require additional evidence. This ensures that lenders can continue to offer suitable and fair mortgages to customers.

Do You Have a Mortgage Product Transfer Affordability Check?

You don’t have a mortgage affordability check when you do a product transfer with your current lender. The products available to you will be predetermined by your lender based on your original application. This means that, as the property value will be index linked, if you’ve done substantial works to the property and the property has increased in value, this increase wouldn’t be taken into account as part of your application.

Either way, if you've been rejected for a second mortgage due to poor credit, there are still other options available. Speak to a broker about what could be suitable for you.


Reasons a Lender May Reject Your Application

There are several reasons why your mortgage application could be rejected. You may have a poor credit score, an inability to prove that you have enough income, or too much existing debt. It's also possible that the lender does not feel comfortable offering you a loan if they don't believe you'll be able to afford it in the long run.

Don't worry if your application is rejected. Just because one lender declines your application doesn't mean that another one won't accept it. Lenders such as high street banks have very strict criteria, so you may be better off looking at options such as alternative lenders that can offer more flexible solutions. It's always best to shop around and get advice from an independent, specialist mortgage broker like John Charcol as we can find you a lender with criteria that better aligns with your circumstances. With our guidance and access to the whole market of mortgage products, a successful mortgage application could be closer than you think.

Mortgage Affordability Checks – Round Up and Next Steps

Lenders follow similar rules when conducting affordability checks, but each lender has their own specific calculations and criteria.

It's important that you understand what lenders consider when they assess your affordability so you can make sure you're in the best position possible before applying for a loan. When you're ready to take the next step, contact us at John Charcol for independent, expert advice. We can help you find the right mortgage that suits your needs and ensure a successful application.

By taking these steps and being diligent with your finances, you may be able to increase your chances of getting a second mortgage at a competitive rate.

First-Time Buyer Mortgages

If you’re thinking of buying your first home, discover the latest advice and the best first-time buyer mortgage rates available on the market with John Charcol today.

Applying for a Mortgage

Applying for a mortgage couldn’t be simpler with our easy and simple guide from application to accepting your offer.

How Much Can I Borrow?

This mortgage calculator examines your income and works out how much money a mortgage lender might provide you with

House Buying Mortgage Guide

Are you looking to buy your first home? Or perhaps want to move to a new area? Our step-by-step guide will tell you everything you need to know about buying a house.

Help to Buy Guide

Support from the government-backed Help to Buy initiative is available for first-time buyers and existing homeowners who are finding it difficult to move up the housing ladder.

House Mortgage Deposit

Saving a mortgage deposit for a house is definitely one of the biggest hurdles you face as a buyer. In our guide we explain how deposits work and ways you can save.

Mortgage Deposit Amounts

Learn all about the different mortgage deposit amount options, how they affect your mortgage, how they vary depending on what type of borrower you are & more.

Funding Home Improvements

There are a few ways to finance work on a house: get a home improvement loan, remortgage for home improvements, ask your lender for a further advance & more

Mortgage Glossary

On this page you’ll find our detailed mortgage terminology glossary. There’s a lot of jargon out there but we’re here to make it easy.