Mortgage affordability how does it work?

You are about to embark on the journey of buying your own property, but do you know how much you can borrow for a mortgage and how lenders calculate this?

This article provides you with essential information you should know about mortgage affordability checks. We cover key parts of what is included when lenders calculate how much they are able to lend you

What is a mortgage affordability assessment?

This is how mortgage providers calculate how much they are willing to lend you and the mortgage repayments are affordable for you now and in the future to ensure that they lend responsibly.

They will calculate this by looking at your annual income and outgoings, as well as your net monthly income and your personal circumstances and will also use a stress test calculation in case interest rates rise, to ensure the mortgage payment will still remain affordable

How mortgage affordability is calculated by a mortgage lender

Each lender will have its own mortgage affordability calculator, and will look at things like age, annual income, expenditure, deposit amount, and how long you want the mortgage for.

They will also take into account future expenditure such as ground rent and services charges and payslips deductions for student loans/ pensions etc

Additional income?

If you earn other income such as commission, bonuses or overtime, lenders will include this in their total assessment if there is a track record and the payments are consistent.

Some lenders will also include income from property rental as declared on tax returns

How eligibility criteria can affect your application

Mortgage Affordability checks are carried out by lenders as part of the mortgage process, as a basis for them to see how much you may be able to borrow, and can afford repayments of the mortgage, but you will also need to meet the mortgage lenders lending criteria

Each mortgage lender will have their own lending criteria which you will need to meet in order for them to approve a mortgage application

The key factors would include:

  • Type of employment: as well as looking at how much you earn, Mortgage lenders will want to see where the money is coming from. Employed income and self employed income is calculated differently. For Employed clients, lenders will use your gross annual salary and also will look at your monthly take home pay after income tax and other deductions. With Self Employed applicants, lenders assess the income based on the figures after deduction of tax and other expenses.
  • Source of income: if you are employed and have bonuses, commission and or overtime, each lender will look at this differently depending on their criteria
  • Single or Joint Mortgage: depending on whether you are applying on your own or with another person will have an impact on the mortgage affordability.
  • Dependents: If you have dependent children or adults who you are responsible for, lenders will take the number of dependents into consideration when calculating your mortgage affordability. They will look at the costs for the dependents – childcare, child maintenance for example and this will be included in your monthly outgoings.
  • Credit History: lenders will look at your credit record and credit score when assessing your application. We always advise clients to check their credit report prior to applying for a mortgage to make sure everything is in order. Having an adverse credit history could affect how much you can borrow as it will limit the number of lenders willing to consider your application and could impact the interest rate and mortgage deal you are offered.
  • Outgoings: lenders will look at your monthly outgoings to spot patterns to see what you spend money on, and make sure there’s no cause for concern from your bank statements If you spend as much as you earn, or have an overdrawn balance each month, lenders will take this into consideration when doing their affordability assessments.

They will also assess the lending available based on:

Deposit and Loan to Value

When looking at mortgage affordability, lenders will look at how much deposit you are putting in and calculate this against the property purchase price as a percentage – known as loan to value (LTV). The higher the LTV, the higher the risk for the lender which will impact how much they will lend

Debt to income ratio (DTI)

This is how 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:

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

Regular monthly costs

Examples of other monthly outgoings that may be considered can include regular payments or existing direct debits for living costs such as:

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

On Line Betting

Online bettings with sports has become popular in recent years, but it can negatively impact your assessment, especially if it is frequent.

Why a lender might decline your mortgage application

There are many reasons why a lender can decline your mortgage application

Some common reasons why your mortgage application may not be successful are:

  • Income does not meet the lender affordability calculations
  • Income type is not accepted by the lender.
  • Insufficient disposable income after your outgoings are taken care of.
  • High level of debt or a high DTI.
  • You have adverse credit – this could affect your application as it will restrict the number of lenders who will consider it

How affordability checks differ between types of mortgages

The type of mortgage you’re applying for can change the way that affordability is calculated.

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

  • Buy-to-let (BTL): with a buy to let mortgage, the expected rental income will be a key factor in the amount you are able to borrow with most lenders. Your personal income will still be taken into account as part of the affordability calculation, but this is more to confirm your tax status (basic rate or higher rate), in order to apply the correct stress test calculation. Again the calculation will depend on the lender and their criteria.
  • Commercial mortgages: each loan will be set up on a case-by-case basis. Each lender will look for different things when it comes to affordability.
  • Bridging finance: lenders will 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 as is the exit strategy you plan to use.
  • Affordability checks if you’re self-employed

    For self employed, contractors and Limited Company Directors, the assessment and checks will be structured differently.

    Below are some areas that are taken into consideration when calculating your affordability:

    • Type of self employment
    • Trading history and number of years accounts available
    • Share of net profit or dividends.
    • Business and personal expenses.
    • Remortgage affordability checks

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

      • Interest rate stress tests.
      • the value of your home.
      • Any changes to your credit scores.
      • Whether there is an early repayment charge for your existing mortgage.


Using a mortgage broker who provides expert advice can prevent unnecessary rejections or marks on your credit file. A qualified mortgage broker will be able to research the mortgage market, provide mortgage advice and recommend mortgage deals most appropriate for you based on your individual circumstances.

Mortgage brokers understand how different mortgage lenders calculate mortgage affordability and they can also advise you what interest rates are available for you and what the maximum mortgage amount you can get is.

They will discuss your budgets to ensure the monthly repayments are affordable, and have the knowledge of what income mortgage lenders will use when calculating your mortgage affordability.