What are mortgage affordability checks?

At a glance

• Affordability checks are designed to make sure that you can afford the repayments on any mortgage you apply for.
• Be prepared: Make sure you’ve reviewed your budget and have all the necessary evidence. If improvements can be made do them before you start the application.
• A poor result on an affordability check could see the lender being unable to proceed with your application, and may affect your chances with other lenders too.

When you’re applying for a mortgage, you always need to be confident that you can afford it – but crucially, so do lenders. They’ll run affordability checks during your application which are designed to ensure that you can comfortably afford the repayments, and you’ll need to provide evidence to show this. It isn’t just about your salary or income multiples – the whole point is to prove you're not overreaching yourself financially, and that can encompass a lot of different factors.

What is an affordability check?

An affordability check is an assessment to make sure you can afford the mortgage you’re applying for, both now and when interest rates rise. The checks are strict, but that’s for your benefit as much as the lender’s, as there’d be nothing worse than taking out a mortgage only to find you were struggling to afford the repayments.

Lenders have their own criteria and tests, but you'll always be expected to provide evidence of your income and expenditure to prove your affordability. This should include both essential payments and non-essential outgoings, covering everything from utilities, council tax and rent/mortgage payments to leisure costs, entertainment and holidays. But there are a lot of aspects to consider.

What do lenders look at?

There are a few core areas that lenders look at when deciding affordability:

Income

Your income will of course be a crucial component of any affordability assessment, and it’s important to know what kind of income counts for a mortgage application. Bear in mind that some forms of income, particularly freelance or zero-hour contracts, can make it harder to prove affordability as they can often be variable, so make sure to bear this in mind when you’re applying.

Alongside this it’s important to consider income multiples (most lenders will apply a maximum income multiple of 4.5, but this can vary), and make sure you’re being realistic with your house-hunting budget by using our mortgage calculator to see how much you could potentially borrow based on your income.

Employment history

Linked to your income is your employment history. The longer you’ve been with your current employer the better, as this shows to lenders that you’ve got a stable income and you’re more likely to be viewed as a safer bet. This may even increase the amount you’ll be able to borrow.

Expenditure

Your level of expenditure can be just as important as your income, because even someone with a top salary could find it difficult to prove affordability if their outgoings are excessive. Lenders will expect to see recent bank statements as evidence of your outgoings, and this will form a key part of their assessment.

Credit score

Your credit score will always come into it, as lenders need to be confident that you’re not a credit risk – and if you are, it could impact the amount you’ll be able to borrow, and even if you’ll be approved at all. Make sure to check your credit score in advance, and look for ways to improve it if necessary.

Existing debts

Not only will existing debts add to your level of expenditure, but they can also impact your debt-to-income ratio . If lenders think you’ve got too much overall debt as a proportion of your income, they’re less likely to lend to you, and at the very least your affordability could be dramatically affected. Read our guide on how to get out of debt if you need to improve things.

Application details

As well as your personal financial situation, lenders will also look at details of the property and your mortgage application itself, including your level of deposit, the value of the property and the amount you want to borrow. This can all be used to determine affordability, but it’s your own finances that will be the key to acceptance.

Mortgage stress tests

Compulsory mortgage stress tests are no longer required, but lenders still take into account the potential impact of future rate rises to ensure affordability, albeit in a more flexible manner. Usually this means they’ll add a margin to their current Standard Variable Rate (SVR), or revert rate, to ensure you’d still be able to afford the repayments, but the exact rate increase they test can vary between lenders.

This may mean that if you’re struggling to prove affordability with one lender, you may have more luck with a different one – a mortgage broker could help in this situation, as they’ll know the calculations typically used by each lender so they can recommend one based on your circumstances.

After lenders have run an initial affordability assessment, they’ll be able to provide a mortgage in principle. This will show how much, in theory, they’ll lend to you, based on your financial situation. This doesn’t guarantee that you’ll be able to borrow that amount, but it can be a useful indication that can help inform your house search – and if it transpires that they’ll offer less than you’d hoped, there’s time to work on improving things. Find out more about mortgages in principle in our guide.

How can you improve mortgage affordability?

If you’re worried about being able to prove mortgage affordability, what can you do to improve it? Here are a few things to try:

1. Review your budget. Take a close look at your bank statement so you know exactly how much money you've got coming in and going out. Make a list of every regular, essential payment as well as how much goes on the likes of pension contributions or student loans, to make sure you’re properly accounting to every essential expense.
2. Keep a detailed record of everything you spend. As well as the essential payments that come out of your account automatically, you also need to consider things like holidays, meals out, food shopping, TV subscriptions, credit cards and travel costs, as well as any regular savings. It’s worth keeping a list of every outlay for a month or two, to get a better idea of your outgoings and a more accurate estimation of monthly costs. You'll be able to see how much you've got left over at the end of the month and will truly see where all your money goes. That way you can see if you can make any cutbacks and crucially whether you'll have enough to cope with any rise in mortgage repayments (read our guide on how to make and manage a money budget to help get started).
3. Limit your spending. If possible, try to limit your spending in the months leading up to the application, particularly if you’ve identified several areas that you can cut back on. Look for ways you could rein in non-essential spending – such as cutting back on meals out, foregoing that Netflix subscription or having fewer holidays – which could not only help you get the application approved in the first place, but could also get you on a more solid financial footing so that if mortgage rates (and your repayments) were to rise, you’d be able to cover it more comfortably.
4. Pay off existing debt. Paying off existing debt could help improve your affordability massively, as lenders won’t be as worried about adding to your overall debt mix and you’ll have fewer monthly outgoings. At the very least, try to start paying more than the minimum amount on things like credit cards – this shows you’re able to manage your credit more effectively – and try to avoid applying for any other forms of credit in the months leading up to the application. Not only will each application result in a temporary dip to your credit score, but applying for too much could indicate that you’re struggling financially, and if you’re rejected it could seriously reduce your chances of being approved for a mortgage.
5. Increase your deposit. If you can, try to increase the amount you can put down for a deposit – this will reduce the amount you need to borrow, which can have a huge impact on your affordability assessment.

What happens if you fail an affordability assessment?

Being unable to prove that you can afford the repayments means you could be eligible for a smaller mortgage than you'd like, which means you may need to rethink your property choice or increase your deposit. If you’re unable to take things forward as a result, you could be rejected outright, which will have bigger consequences and could make it more difficult to be accepted with a different lender in the future.

The key is to be prepared. If you're already struggling to make ends meet, you'll want to focus on making the necessary improvements to your budget, and don’t forget to consider your credit rating too. Get an idea of what your future repayments could be like by using our repayment calculator, and read our guide on how to improve your chances of getting a mortgage – and crucially, take steps to implement any tips that could be beneficial.

Yet one of the most important things you can do is speak to a mortgage broker. They’ll help you understand what you need to do to improve your affordability and can work with you to make the necessary changes, and can even recommend lenders that are more likely to accept your application.

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