When it comes to securing a mortgage in the UK, the process involves more than simply proving you have a deposit and a steady income. Lenders are required to carry out what’s known as a mortgage affordability check, an assessment designed to ensure you can comfortably meet your monthly repayments both now and in the future. These checks aren’t just a formality – they play a key role in determining whether your application is approved, how much you can borrow, and on what terms. Understanding exactly what’s involved in an affordability check can help you prepare well in advance and improve your chances of securing a mortgage that suits your needs.
Why Mortgage Affordability Checks Exist
Mortgage affordability checks were introduced to encourage responsible lending and borrowing. After the financial crisis of 2008, regulators tightened the rules to prevent situations where homeowners were taking on loans that were unsustainable if interest rates rose or incomes fell. Today, lenders must comply with guidance from the Financial Conduct Authority (FCA), assessing whether an applicant can still make repayments under less favourable financial circumstances. This means they’re not just looking at your current financial position but also stress testing your ability to handle potential increases in interest rates or other changes to your finances.
The Factors Lenders Consider
When carrying out an affordability check, lenders look at a broad picture of your financial health. They don’t simply multiply your annual salary by a set figure to arrive at a borrowing limit. Instead, they’ll consider several key elements, each of which can have a significant impact on your application. One of the most important factors is your income. This includes your basic salary, any bonuses, overtime, commission, rental income, and certain benefits. The higher and more stable your income, the more confident a lender will feel about your ability to meet repayments. They’ll also assess your outgoings, which include fixed costs such as rent or other mortgage commitments, credit card balances, personal loans, car finance, childcare, and general living expenses. Even regular spending on things like gym memberships, subscriptions, and leisure activities may be factored into the calculation. Finally, lenders will take into account your credit history. A strong credit score suggests you manage your debts responsibly, whereas missed payments, defaults, or a high level of existing borrowing could raise concerns.
Stress Testing for Future Changes
One of the defining features of modern affordability checks is stress testing. Lenders will run calculations to see whether you could still afford your repayments if interest rates were to rise by a few percentage points. While this might seem cautious, it’s a safeguard for both you and the lender. It prevents situations where borrowers take on repayments they can manage in the short term but that quickly become unmanageable if financial conditions change. Even if you apply for a fixed-rate mortgage with a low starting rate, the lender will still check whether you could cope with higher repayments once the fixed term ends or if you had to switch to a higher variable rate. This is particularly relevant given the recent fluctuations in the UK base rate, which can have a noticeable impact on monthly mortgage payments. Stress testing also accounts for changes in your personal circumstances. If your income were to drop slightly or your expenses were to rise – for example, due to starting a family or taking on new financial commitments – the lender needs to be sure your mortgage remains affordable. The aim is to avoid repossessions and financial strain, ensuring that your home remains secure even in less favourable conditions.
The Role of Credit History
Your credit history plays a major part in the affordability assessment. Lenders don’t just look at your credit score; they also examine the details behind it. They’ll review your payment history, the types of credit you have, how much you owe, and how long you’ve had credit accounts open. Even small issues, such as a missed utility bill payment, can have an impact. Applicants with an extensive credit history that shows regular, timely payments are often viewed as lower risk. Conversely, if you’ve had county court judgments (CCJs), individual voluntary arrangements (IVAs), or bankruptcies in the past, this can raise red flags. That said, different lenders have varying attitudes to past financial difficulties. Some may decline an application outright, while others may still be willing to offer a mortgage, often at a slightly higher interest rate or with a lower loan-to-value ratio.
How Lender Criteria Differ
While all lenders must follow the same overarching rules, their individual criteria for assessing affordability can differ. Some lenders may take a more flexible approach to certain types of income, such as overtime or self-employed earnings, while others may discount them entirely. There can also be differences in how they treat applicants with existing credit commitments. One lender might be comfortable with a higher proportion of your income going towards debt repayments, while another might apply a stricter limit. Because of these variations, it’s possible to be declined by one lender and accepted by another, even with the same financial information. This is one of the key reasons many people choose to work with a mortgage adviser, as they can identify the lenders most likely to accept your application based on your individual circumstances.
How to Improve Your Affordability Assessment
If you’re planning to apply for a mortgage, there are steps you can take to strengthen your position before undergoing an affordability check. Reducing your debt is one of the most effective ways to improve your chances. This might mean paying down credit card balances, clearing personal loans, or avoiding new borrowing in the months before your application. Keeping your spending under control is equally important. Lenders often look at three to six months’ worth of bank statements, so maintaining sensible, consistent spending habits can work in your favour. Avoid large, unnecessary purchases and ensure you stay within your means. It’s also a good idea to review your credit report for any errors and address them before applying. Even small inaccuracies, such as outdated addresses, can cause complications. Making sure all your bills are paid on time in the lead-up to your application can help demonstrate financial reliability.
The Role of Mortgage Advisers
Navigating affordability checks can be daunting, especially for first-time buyers or those with complex financial situations. This is where a mortgage adviser can make a real difference. They can assess your circumstances, identify the most suitable lenders, and help you present your finances in the best possible light. Advisers also understand how different lenders approach affordability. While one lender may be cautious about certain income types, another might be more flexible. Having someone who knows the market can help you secure a mortgage offer that meets your needs without unnecessary delays or rejections.
Common Myths About Affordability Checks
It’s easy to misunderstand the purpose and process of mortgage affordability checks, so let’s address a couple of common myths. One misconception is that if you’ve been approved for a mortgage in the past, you’ll automatically be approved again for the same amount. In reality, affordability rules and lender criteria can change, and your own financial situation might be different from when you last applied. Another myth is that affordability checks only matter for first-time buyers. In truth, anyone taking out a mortgage – whether they’re moving house, remortgaging, or buying a second property – will need to go through the process.
Why Preparation is Key
Applying for a mortgage without understanding the affordability check process can lead to disappointment if the amount you’re offered falls short of your expectations. By preparing in advance, reducing unnecessary expenses, managing debts, and keeping your financial records in good order, you can increase the likelihood of a successful application. Mortgage affordability checks are not designed to make the process more difficult – they’re there to protect you from overstretching financially. Knowing what to expect, and how to prepare, means you can approach the process with confidence and secure a mortgage that is realistic and sustainable.
