What Are Mortgage Affordability Checks?

How do mortgage lenders work out affordability?

Each lender will have its own way of calculating mortgage affordability. The most basic system is to use an income multiple as a rule of thumb. The reason income multiples are used is that looking at your mortgage to earnings ratio gives lenders a straightforward window into what you could be able to afford.

This can give you a good ballpark figure to work with. But, the multiples used can vary quite a lot. The average used is 4-4.5x your salary, but some will only offer 3 times your income. There are also lenders who will use bigger income multiples of 5x income, and in a few cases, 6 times salary.

However, your gross salary doesn’t tell the full story. And so, affordability assessments often involve checks into your major outgoings to look at your disposable income. This allows lenders to get a more complete picture of what you can afford with your mortgage.

Can you include additional income on your application?

Yes, this is definitely possible. If you earn commission, bonuses, or overtime – some lenders will allow this in their total assessment. Certain lenders will also permit income from extra freelance work you do. Or the income you receive from investments (including other properties).

So, if your income does come from multiple sources, it’s worth dealing with a lender who will take all of it into account when looking at your application.

How eligibility criteria can affect your application

Affordability assessments are carried out by lenders as a basis for them to see how much you may be able to borrow, but they are not the be-all and end-all when it comes to your mortgage application being approved.

Each lender will have their own internal eligibility criteria, which could indirectly affect your chances of securing the mortgage you need.

The key factors would include:

• Type of employment: it’s not just how much you earn, but where that money comes from. Whether you’re an employee or self-employed will affect how your application is assessed. Some lenders will have tighter criteria or alternative rules if you run your own business.
• Source of income: some lenders will have strict definitions about what they can accept as income. So, if you earn a commission, bonuses, overtime, or any other income type – it’s worth dealing with a lender who will take all this into account. This is a great way to stretch what you can afford without needing to access a higher salary multiple.
• Credit scores: this gives lenders a brief overview of your financial history. It’s worth downloading all your credit reports before you start the application process. Doing this will allow you to spot any errors or make improvements ahead of time. A poor credit record could indirectly affect how much you can borrow in the sense that it will limit the number of lenders willing to consider your application.
• Outgoings: lenders will look at your typical monthly outgoings to spot patterns and make sure there’s no cause for concern. There will be a thorough review of your bank statements to see how much you spend, and what you spend money on. If you spend as much as you earn, lenders will be able to see and potentially let you borrow less.

What outgoings are considered when applying for a mortgage?

Each lender will be different. But there are some specific monthly outgoings most will check when carrying out an affordability assessment. This will likely include the areas below.

Debt-to-income ratio (DTI)

This is an important piece of the process because it’s a way for lenders to measure your income against your current debts.

The calculation works by dividing the total cost of your monthly debts by your gross monthly income. So, you can work this out for yourself.

Common monthly debt payments include the likes of:

• Credit cards or store cards
• Personal loans
• Student loan repayments
• Rent or existing mortgage payments
• Child support
• Car finance

When you work out your debt-to-income ratio (DTI) as a percentage, ideally it’s best to be around 20-30% for the top deals. But, some lenders will still offer competitive rates with a higher DTI. However, if your DTI is over 50%, it may be worth clearing some debt first.

You can see how this works for you on our calculator below:

Regular monthly costs

This isn’t a complete list. But, examples of other monthly outgoings that are considered can include regular payments or existing direct debits for things like:

• Mobile phone contracts and utility bills.
• Streaming services.
• Gym memberships.
• Regular investment contributions.

This will all be looked into as part of the mortgage affordability checks. So, it’s worth having a run through all your typical outgoings on a practice questionnaire before starting the application process.

Do affordability checks cover gambling?

Yes, and this can be a red flag for lenders. Although online gambling with sports has become popular in recent years, be wary that it can negatively impact your assessment. It’s worth cutting down or stopping altogether before you start applying for mortgages. Or, get your broker to introduce you to lenders willing to accept applications from occasional gamblers.

Mortgage affordability calculator

Our affordability calculator can tell you how much you can potentially borrow from a mortgage lender.

Simply enter your total household income below and our calculator will do the rest.

Why a lender might decline your mortgage application

There can be lots of reasons why this might happen. Because each lender often uses different criteria, any one single area could let you down.

Here are some of the common ways your mortgage application may be declined based on affordability: 

• Not enough income.
• The type of income isn’t accepted by the lender.
• Minimal disposable income after your outgoings are taken care of.
• Too much regular debt or a high DTI.
• You have bad credit. – this could indirectly affect your application as it will restrict the number of lenders who will consider it

Using expert advice can prevent any further unnecessary rejections or marks on your credit file. A knowledgeable broker will introduce you to the most suitable lender to reapply with, giving you a better chance of approval. Just make an enquiry and we’ll introduce you for free.

How affordability checks differ between types of mortgages

The type of mortgage you’re applying for can change how affordability is calculated.

Here are a few scenarios that involve different checks and assessments:

• Buy-to-let (BTL): with a buy-to-let mortgage, your income isn’t as important. Because this is an investment, the expected rental income will be more relevant. Usually, this needs to be 25-30% higher than your mortgage payment. You may also need to be able to afford to put down a larger deposit for a BTL property
• Commercial mortgages: for a commercial mortgage, there will be no strict blueprint as each loan will be set up on a case-by-case basis. This makes it harder to prepare your application without the support of an expert broker. Because each lender will look for different things when it comes to affordability
• Bridging finance: for bridging loans, lenders will want you to use an asset as security rather than looking at how much you earn. The value of the asset you’re using is much more pivotal in the affordability assessment than is the exit strategy you plan to use.

Affordability checks if you’re self-employed

For those who are self-employed or own a business, your assessment and checks will be structured slightly differently.

It’s not always straightforward, but here are some areas that are more likely to play a key role in calculations:

• Whether you’re a sole trader, company director, or contractor.
• 2 to 3 years of trading history and accounts.
• Your share of net profit or dividends.
• How much you contribute to your pension or SIPP.
• Business and personal expenses.

Remortgage affordability checks

There are some alternative areas of importance if you’re remortgaging. Whether that’s with your existing lender or switching to a new one.

Along with looking at the normal criteria outlined above, when you plan to remortgage, lenders will also check:

• Interest rate stress tests.
• Property valuation for your home.
• Your ability to cover the fees involved (application, valuation, and solicitor’s fees).
• Are there any changes to your credit scores?
• Whether there is an early repayment charge for your existing mortgage.

Speak to an expert broker to prepare you for affordability checks

The best way to make sure you’re properly prepared for mortgage affordability checks is with the support of a skilled advisor. An expert broker can help structure your application in an attractive way. And, introduce you to the right lenders from day one.

We’ll quickly assess your needs and pair you up with one of our knowledgeable brokers. One who can find you the right mortgage that meets your affordability requirements.

Just call 0330 818 7026 or make an enquiry. We’ll set up a free, no-obligation chat between you and an experienced broker today.