Mortgage Affordability and Mortgage Amounts

Mortgage affordability essentially means what you can afford to borrow on your mortgage. In the UK, the Financial Conduct Authority (FCA) requires lenders to assess whether borrowers can afford to repay the mortgage they’re applying for. Mortgage lenders must carry out a mortgage affordability assessment in which they consider your income, spending and debts.

Getting a mortgage where you can’t afford the repayments can have serious consequences. You may risk losing your home and the damage caused to your finances and credit report can be difficult to repair. These potential negative consequences are why the affordability assessment is so thorough and rigorous. Falling behind on your mortgage repayments has greater risks than getting behind on rent.

Mortgage lenders will carry out credit checks of your credit history to determine your credit worthiness, looking at how responsible you are with keeping up your repayments. Any late, missed, or failed repayments on your utilities or credit agreements, such as for loans or credit cards, or a history of CCJs (county court judgments), IVAs (individual voluntary arrangements), or bankruptcy will negatively impact your credit score. Lenders who perceive you as posing a higher lending risk may require you to put down a larger mortgage deposit, charge you a higher interest rate or decline your mortgage application altogether.

If you're wondering, "how much mortgage can I afford?", it's important to remember that every lender has their own criteria for assessing affordability in the UK. You’ll find that some lenders may offer you more than others. As a general rule of thumb, most people can expect to borrow up to 4 - 4.5x their annual income. If you have a decent sized deposit and an excellent credit record, you may even be able to find a lender willing to let you borrow up to 5x your income.

Here's an example of what these income multiples look like with regards to a mortgage:

• Your salary is £30,000, you could borrow:
  • £120,000 at 4x your salary
  • £135,000 at 4.5x your salary
  • £150,000 at 5x your salary

Buying a home with another person usually means the affordability assessment is based on your combined annual income. Therefore if you both earn £30,000, you may be able to get a mortgage of between £240,000 and £300,000.

A quick and easy way to find out how much you can borrow is by using our mortgage borrowing calculator. You just need to input how much you earn and your monthly outgoings, and it will estimate how much you can afford to borrow. There’s also our useful mortgage repayments calculator to find out how much your monthly loan repayments might be.

John Charcol is an independent, expert mortgage broker who will guide you through what you can expect to borrow before you approach a lender. We’ll be able to advise you on your mortgage affordability based on our extensive market experience and knowledge of lenders’ mortgage criteria.

While it varies depending on the lender, most will ask for bank statements for the past 3 - 6 months and use these to assess your mortgage application. If you’re a self-employed sole trader, the lender may ask you to provide up to 2 years of self-assessments. If you’re a director of a limited company, the lender will require the last 2 years of self-assessments to show your salary and dividends drawings as well as 2 years of the limited company’s accounts.

As with a standard residential mortgage, remortgage affordability is based on your income and outgoings. If you choose to remortgage with a new lender, you’ll need to pass the affordability assessments of the new lender. Lenders will also consider any early repayment charges as part of your affordability assessment.

Lenders will look at your ability to afford the mortgage based on your circumstances. This means the deals available to you now may be different that what you took our originally when you bought the property. That’s why it’s helpful to speak to an expert mortgage broker like John Charcol about all the remortgage options available.

If you’ve been declined a mortgage on the grounds of affordability, speak to an independent mortgage broker such as John Charcol who can help you get your next application approved. It’s best to do this rather than simply try again on your own, as too many mortgage applications and rejections can negatively impact your lending appeal. A specialist mortgage broker can match you with a lender that best suits your circumstances, enabling you to reapply confidently, knowing that you better align with the new lender’s eligibility and affordability criteria.

Understanding how mortgage lenders calculate affordability can help you find the best deal and increase your chances of being approved. At John Charcol, our team of expert mortgage brokers is here to guide you every step of the way and help you get the best possible mortgage for your situation. Get in touch with us today to learn more about mortgage affordability and how we can help you secure the mortgage you need.