What mortgage can I afford?

How can I work out whether I can afford a mortgage?

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Mortgage affordability is a tricky subject, especially after the 2014 Mortgage Market Review (MMR).

Man on telephone whilst using laptop

This gave banks and building societies increased responsibility for ensuring their customers could genuinely afford to repay the mortgages they were lent - and has therefore made it more difficult for some people to borrow.

Whether or not you can afford a mortgage will depend on your financial circumstances - how much you earn and spend each month - plus the level of deposit you have to put down on your chosen property, and the purchase price of the property.

Most mortgage lenders provide online affordability calculators that offer a general guide to how much you could borrow - and MoneySuperMarket’s mortgage channel offers its own affordability and repayments calculator too.

However, the results of any online calculator are only a general guide to the amount a bank or building society might be prepared to lend you.

Remember: only your chosen lender can make a final decision on how much it will offer you once you have applied for a mortgage and have given the lender detailed information about your financial situation and intended property purchase.

What will my lender look at when they assess whether or not I can afford a mortgage?

First and foremost, your lender will look at how much you earn before tax (plus the pre-tax income of any joint applicants for your mortgage, such as your partner or spouse).

It will then review your outgoings, assessing how much you spend each month on things such as:

  • Credit card and loan repayments
  • Child / spousal maintenance
  • Childcare costs
  • School fees
  • Travel
  • Insurance
  • Other household bills
  • Your existing rent or mortgage payment.

Even your spending on entertainment and leisure, holidays and food may be taken into account by your lender during an affordability assessment.

Your lender will balance this information with the details you provide about the property you wish to purchase and the deposit you have available to put down on it.

The lender will then make a decision on whether or not the mortgage you’ve applied for is affordable for you.

Is there anything I can do to help demonstrate that I can afford a mortgage?

Yes. If you know you’re going to be applying for a mortgage in the near future, there are steps you can take to improve your chances of passing a lender’s affordability tests, starting now.

Firstly, you should prioritise paying down debts. If you have outstanding balances on loans and credit cards and are able to clear or reduce them, it’s a good idea to do so.

Secondly, you may want to consider reining in your spending. When the time comes to apply for your mortgage, your lender will look at how you’ve handled your money in recent months - but may request bank statements from as far back as six months ago. The longer you can keep your spending stable in advance of your mortgage application, the better.

Before applying for a mortgage, you should also do everything you can to make sure your credit file is in top shape.

Check the information held on you by the main credit referencing agencies (Experian, Equifax and CallCredit) to make sure it is correct (find out more here), and do anything you need to in order to improve your file. A simple step such as ensuring you are on the electoral roll could make a big difference to how favourably a mortgage lender may see you.

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