How Do Lenders Assess Mortgage Affordability?
UK lenders check more than your income multiple. They look at regular spending, debts, credit history and how your budget would cope if interest rates rise. This overview explains the main checks and shows how the HouseBudget Calculator mirrors them.
Income and employment
- Salary and bonuses: Basic salary counts in full; bonuses or commission may be averaged over 6–24 months.
- Self-employed: Lenders often average the last 2–3 years of accounts or SA302s, sometimes using the lower figure.
- Probation or contracts: Short histories or probationary periods can limit options or require specialist lenders.
Debts and credit commitments
Car finance, credit cards, personal loans and buy-now-pay-later all reduce how much you can borrow. Lenders deduct these payments from your income before applying their affordability formulas. Clearing or reducing debts can make a noticeable difference.
Household spending
Banks apply minimum benchmarks for essentials like food, travel and utilities, then compare them to your declared spending. If your disclosed spending is higher, they use that instead. Tight budgets may be rejected if they look unrealistic.
Stress testing interest rates
Even if you pick a lower fixed rate, lenders model payments at a higher stress rate to ensure you could still afford the mortgage when rates change. This can become the limiting factor when rates are rising.
Deposits, term length and credit history
- Deposit size: Larger deposits reduce loan-to-value ratios and can improve affordability outcomes and rates.
- Term length: A longer term lowers monthly payments but increases total interest; lenders cap terms by age and product rules.
- Credit record: Missed payments or high card utilisation can restrict which lenders or rates are available.
Compare lender logic with your own budget
- Enter household income, debts, rate, term and a stress rate into the HouseBudget Calculator.
- Choose a safe housing percentage (e.g., 28–32%) to see the monthly payment that fits your budget.
- Review the stress-tested payment and the income-multiple cap to see which constraint bites first.
- Adjust term, deposit or debts to bring the estimated property price within a comfortable range.
Key points to remember
- Lenders test affordability at higher rates than your initial deal.
- Declared spending matters; unrealistic figures can cause delays or declines.
- Reducing debts or extending the term can lift affordability, but balance this against total interest.
- Use your own budget as the ceiling, even if a lender might offer more.