Mortgage Affordability Explained

Mortgage affordability is about much more than simply multiplying your income. Different lenders assess income, debts, regular commitments, dependants, deposit and other circumstances in different ways – which means the amount you could borrow can vary considerably from one lender to another.

Understanding your affordability early can give you a much more realistic idea of your property budget before you start viewing homes or making offers.

Thinking About Viewing Properties or Making an Offer?

Book an initial mortgage review call and we can check your position, explain how lenders may assess your income and commitments, and give you a clearer idea of what may be realistic before you start seriously looking at properties.

What Is Mortgage Affordability?

Mortgage affordability is how a lender assesses whether a mortgage is sustainable based on your overall financial circumstances. It isn’t simply based on your salary. Depending on the lender, they may consider:

  • Salary and other income
  • Overtime, bonuses and commission
  • Loans, credit cards and other commitments
  • Childcare and dependants
  • Your deposit and loan-to-value
  • Mortgage term

Different lenders calculate affordability differently, so the amount you may be able to borrow can vary.

How Mortgage Affordability Really Works

Mortgage lenders need to be satisfied that the mortgage you are applying for is affordable, both now and in the future.

While income is obviously important, it is only one part of the calculation. Lenders may also consider your existing debts, regular expenditure, dependants, deposit, mortgage term and how your income is earned.

Different lenders use different affordability models. This is why two lenders looking at exactly the same applicants can sometimes produce very different borrowing figures.

Here is how the main parts of mortgage affordability are usually assessed.

1. Your Income and Employment

Lenders will normally start by looking at the income available to support the mortgage.

This may include basic salary, overtime, bonuses, commission, allowances, self-employed income, pension income or certain benefits.

However, lenders do not necessarily treat every type of income in the same way. One lender may use all of a particular income source while another may use only part of it, average it over a period of time or disregard it completely.

Your employment history and the stability of the income may also be relevant.

2. Your Existing Commitments

Lenders will also look at financial commitments that may reduce the amount of income available for mortgage payments.

These can include loans, credit cards, car finance, maintenance payments, childcare costs and other regular commitments.

Even debts that you intend to repay before the mortgage completes can be treated differently by different lenders. Some may be prepared to disregard them where their criteria are satisfied, while others may continue to include the payments within their affordability calculation.

This is one reason why lender choice can be particularly important.

3. Your Deposit and Loan-to-Value

Your deposit determines the percentage of the property’s value that you need to borrow, known as the loan-to-value or LTV.

For example, if you buy a £200,000 property with a £20,000 deposit, you would require a £180,000 mortgage — equivalent to 90% loan-to-value.

A larger deposit can sometimes give you access to a wider range of mortgage options, although the amount a lender is prepared to lend will still depend on its affordability assessment and lending criteria.

4. Different Lenders Can Produce Different Results

There is no single affordability calculation used across the mortgage market.

Different lenders make different assumptions about income, expenditure, credit commitments and household circumstances.

This means one lender might not be prepared to lend the amount you need while another could potentially be comfortable with it.

Rather than relying solely on a simple income multiple or online calculator, it can therefore be helpful to compare your circumstances against lenders that are likely to be suitable for your particular situation.

5. How Much You Can Borrow Isn't the Only Question

A lender may be prepared to offer you a particular mortgage amount, but that does not automatically mean you should borrow the maximum available.

Your own budget matters too.

Think about the monthly mortgage payment you would genuinely feel comfortable with while still allowing room for everyday spending, emergencies, holidays, hobbies, home improvements and changes to your circumstances.

Sometimes it makes more sense to work backwards from a comfortable monthly payment rather than starting with the maximum mortgage available.

6. From Affordability to an Agreement in Principle

Once we have a clearer understanding of your potential borrowing position, the next stage may be to obtain an Agreement in Principle (AIP) from a suitable lender.

An Agreement in Principle gives an initial indication that the lender may be prepared to lend the amount required, based on the information available at that stage.

It can be particularly useful when you are preparing to view properties or make an offer.

An AIP is not a mortgage offer and the lender will still need to assess the full mortgage application, supporting documents, credit information and the property itself before making a final lending decision.

Important Note

Does Passing an Affordability Check Guarantee a Mortgage?

No. An affordability assessment gives an indication of what may be possible, but it does not guarantee that a lender will approve a mortgage.

The lender will still need to consider the full application and its lending criteria.

Important things to remember:

  • Your income and commitments will normally need to be evidenced
  • Credit history and credit scoring can affect lender choice
  • The property must meet the lender's requirements
  • Interest rates and lender criteria can change
  • Affordability may change if your circumstances change
  • A formal mortgage offer only follows a successful full application

WHEN SHOULD YOU CHECK YOUR MORTGAGE AFFORDABILITY?

It is usually worth understanding your borrowing position before you become too committed to a particular property or price range. Checking early can help you set a realistic budget and identify potential issues before they become a problem.

Before Viewing Properties

Understanding your likely borrowing range can help you focus on properties that fit within a realistic budget before you start seriously looking.

Before Making an Offer

Checking affordability before making an offer can help reduce the risk of agreeing a price that may not fit your likely borrowing position.

If Your Situation's More Complex

Variable income, commission, overtime, existing debts or childcare costs can all be treated differently by mortgage lenders.

Common Mortgage Affordability Questions

Clear answers to some of the most common questions about how mortgage lenders calculate affordability and how much you may be able to borrow.

Mortgage lenders normally assess your income alongside your existing debts, regular financial commitments, dependants, mortgage term and other household circumstances.

Each lender has its own affordability model, so the amount available can vary considerably between lenders.

Income multiples can provide a useful rough guide, but they should not be treated as a guaranteed borrowing figure.

The amount available will depend on the lender, your income, commitments, deposit, mortgage term and overall circumstances. Some lenders may also offer higher income multiples in particular circumstances.

They can.

Lenders normally take account of existing credit commitments when assessing affordability. The effect will depend on the amount outstanding, monthly payments and the individual lender’s calculation.

This varies between lenders.

Some lenders may be prepared to disregard debts that will be cleared before completion where their criteria are met and suitable evidence is available. Other lenders may still include the commitment when calculating affordability.

Potentially, yes.

Different lenders have different rules regarding variable income. They may use different percentages or average the income over different periods depending on its type, frequency and history.

It can.

Childcare and other costs associated with dependants may form part of a lender’s affordability assessment. How these costs are treated varies between lenders.

A larger deposit can improve your loan-to-value and may give you access to a wider range of mortgage products or lenders.

However, affordability is still assessed separately, so a bigger deposit does not automatically mean a lender will offer a larger mortgage.

Online calculators can be useful as a rough starting point, but they cannot always reflect the differences between individual lenders or more complicated circumstances.

For a clearer picture, affordability can be checked against lenders that may be suitable for your income, commitments and overall circumstances.

Ideally, yes.

Understanding your approximate borrowing position before seriously viewing properties can help you establish a realistic budget and avoid looking at homes that may require borrowing outside your likely range.

Once you have a realistic idea of your potential borrowing position, the next step will often be an Agreement in Principle with a suitable lender.

You can then begin viewing properties or making offers with a clearer understanding of your budget.