Mortgage Affordability Checks

Every lender takes its own approach when determining how large a mortgage you can afford. One popular technique is to use an income multiplier as an indicator. The majority of lenders apply an average multiple of 4 - 4.5x your salary/income based on self-assessment when considering loan applications to determine your maximum borrowing. There may be some exception to the rule whereby some lenders will only offer 3x your income while others will potentially extend up to 5x or 6x the value of your earnings.

Bear in mind that your maximum borrowing does not provide a comprehensive account of your financial status. To gain insight into how much you can manageably allocate towards mortgage payments each month, lenders conduct additional assessments that consider other expenses and evaluate disposable income. This gives them an in-depth understanding of what's realistic for you financially when it comes to repaying a loan.

You can use our handy how much can I borrow calculator or our more detailed affordability check mortgage calculator to determine how much you can potentially borrow on your mortgage. You can also use this mortgage repayments calculator to see an estimate of what your repayments could be each month.

Depending on the kind of mortgage you're applying for, the way in which lenders check mortgage affordability can vary.

Here are a few different examples:

• Commercial mortgages - when applying for a commercial mortgage, there's no set formula as the loans are granted on a case-by-case basis. An experienced broker can help ensure that you're properly equipped with all the essential components for a successful application. Every lender has their own criteria when considering mortgage affordability and having expert advice on hand can help streamline this process
• Buy-to-let mortgages - when you're looking to invest in a buy-to-let property, the size of your income is not as important. The anticipated rental earnings must be 25% - 30% higher than your mortgage payments and this is usually considered more important when applying for a loan. You may also need to have sufficient savings or capital available so that you can put down a large deposit
• Bridging mortgages - when it comes to bridging loans, lenders prioritise your assets as security rather than looking at income alone. The value of the asset and how you plan to pay back the loan are key factors in assessing affordability. Therefore, having a clear exit strategy is essential for successful bridge financing
• Adverse credit mortgage – adverse credit mortgage lenders tend to have more flexible affordability criteria than high street lenders as they assess applications on a case-by-case basis, rather than being automated. This means they’re often more likely to be able to consider your application but will probably offer higher rate products

If you're self-employed, lenders will apply an income multiplier much like they would for a self-employed applicant. Lenders will ask for proof of income such as accounts or a tax return. They may also want to see evidence that your business is consistent and has been in operation for some time. Typically, mortgage lenders require at least 1 - 2 years' worth of accounts to prove your income is consistent and reliable.

Lenders can also take into account any assets or savings you have, along with any other sources of income.

An independent, specialist mortgage broker such as John Charcol can help you to find a lender that can consider different income sources for self-employed applicants.

When it comes to remortgaging, there are a few extra considerations that you must take into account. Alongside evaluating the usual criteria, lenders will also look at these details when checking your affordability for a remortgage:

• The value of your home and the equity you have in it
• Your capacity to pay the relevant fees, such as application costs, appraisals, and conveyancer's charges
• Any changes to your credit score
• Whether there's an early repayment penalty associated with your current mortgage

Affordability checks for remortgaging may require additional evidence. This ensures that lenders can continue to offer suitable and fair mortgages to customers.

Do You Have a Mortgage Product Transfer Affordability Check?

You don’t have a mortgage affordability check when you do a product transfer with your current lender. The products available to you will be predetermined by your lender based on your original application. This means that, as the property value will be index linked, if you’ve done substantial works to the property and the property has increased in value, this increase wouldn’t be taken into account as part of your application.

Either way, if you've been rejected for a second mortgage due to poor credit, there are still other options available. Speak to a broker about what could be suitable for you.

There are several reasons why your mortgage application could be rejected. You may have a poor credit score, an inability to prove that you have enough income, or too much existing debt. It's also possible that the lender does not feel comfortable offering you a loan if they don't believe you'll be able to afford it in the long run.

Don't worry if your application is rejected. Just because one lender declines your application doesn't mean that another one won't accept it. Lenders such as high street banks have very strict criteria, so you may be better off looking at options such as alternative lenders that can offer more flexible solutions. It's always best to shop around and get advice from an independent, specialist mortgage broker like John Charcol as we can find you a lender with criteria that better aligns with your circumstances. With our guidance and access to the whole market of mortgage products, a successful mortgage application could be closer than you think.