Understanding your potential monthly mortgage payments is an important part of the home-buying process. Mortgage lenders will carry out Mortgage affordability tests (also known as checks) which look at the size of your deposit, your income, your outgoings and any other factors such as debt that could affect how you pay back your mortgage.
Mortgage lenders will assess whether your income and outgoings are sufficient to cover monthly mortgage payments, alongside other household costs.
This detailed guide can help you to prepare and understand what to expect with mortgage affordability checks.
How Much Mortgage Can I Afford?
The loan-to-value (LTV) is how much of the property’s value you can borrow which is capped at 4.5 times your salary. For example, if you have a 20% deposit and need to borrow 80% of the property’s value as a mortgage, your LTV will be 80%. The lower the LTV, the cheaper monthly mortgage payments become.
A larger mortgage deposit may help you access lower interest rates and a wider range of mortgage deals. You’ll have access to a wider range of mortgage deals and lenders will view your loan as a lower risk as you’ll be borrowing less from them.
You’ll normally need at least a 5% deposit to buy a property (e.g. 95% LTV). You’ll get a much wider choice of deals if you can save 10% (90% LTV), and even more choice if you save 20% (80% LTV), or 30% (70% LTV).
If you have significant debt, you might not qualify for a mortgage, or the lender will loan you very little. Lenders will take your outgoings into account when assessing your application, which may affect how much you are eligible to borrow.
What the Lender Takes into Account
In 2014, the Financial Conduct Authority (FCA) introduced a role that capped the loan-to-income ratio at 4.5. This means the largest amount most people can borrow as a mortgage is 4.5 times their annual income.
It’s important to note that this is the maximum you can borrow – many people will only be eligible for much smaller loans, especially if they are on a lower salary or looking to get a mortgage on a zero-hour contract.
Rules introduced in 2014 also required lenders to carry out an affordability assessment before deciding how much to lend each applicant. During a mortgage interview with a lender, the affordability assessment looks in-depth at your income and your outgoings.
It is used alongside your credit score and the size of your deposit to make a decision about how much you can borrow. The lender may give an indication of the credit score range they typically require for a mortgage application.
Compare Mortgage Brokers
Accredited mortgage brokers
Used by over 1.5 million movers in the UK
How to Calculate Mortgage Affordability?
Your mortgage lender or mortgage broker will first run some checks into how much you can afford to borrow. Typically called a Mortgage in Principle, the lender will need to know the salary of all applicants to provide you with a rough figure of what to expect to borrow.
Then they will carry out their affordability assessment which will thoroughly check your outgoings and income to see if they can accept you for a mortgage. Your lender will require the following:
Proof of current address in the form of a letter or bill
I.D such as driving license or passport
3-6 months bank statements up until the current date
3-6 months payslips up until the recent month
Proof of deposit such as bank statement, premium bonds, savings account, gifted deposit, etc.
What is Mortgage Affordability Criteria?
During an affordability assessment, your mortgage lender will look at how much you earn before tax and any other income you receive. They will also review your outgoings and spending patterns.
Your income might include:
Your salary from your job
Any income from a second job
Any benefits you receive
Pension income
Child maintenance payments
Spousal support from an ex-partner
What are Outgoing Payments?
When determining how much mortgage you can afford, your mortgage lender will also look at your outgoings. Many lenders will look at future scenarios that could affect how you pay your mortgage back such as if you were to have a child or lose your job.
Your outgoings might include:
Utility bills (gas, electricity, water)
Telecoms bills (broadband, mobile phone)
Debt repayments
Student loan repayments
Childcare bills
Regular travel expenses (i.e. if you commute to work)
Any child maintenance payments to an ex-partner
Car expenses (i.e. insurance, servicing)
Insurance (e.g. home, health)
Compare Mortgage Brokers
Accredited mortgage brokers
Used by over 1.5 million movers in the UK
How Do Mortgage Interest Rates Work?
Your mortgage interest rate will determine how much you will pay per month for your mortgage. There are two main types of mortgage, a fixed-rate mortgage and a variable-rate mortgage:
Fixed-Rate Mortgage:
With a fixed-rate mortgage the interest rate on your mortgage, and therefore your monthly payments, will be fixed for a set amount of time, normally 2, 3 or 5 years. Many people choose this option as it can mean a lower and stable monthly payment for a fixed period.
When the fixed rate ends, you’ll normally be moved to your lender’s standard variable rate (SVR). This will probably be a higher rate and your payments will become more expensive. Most people remortgage to a better deal at this point, which involves the help of a remortgage solicitor.
Variable Rate Mortgage:
With a variable rate mortgage, the interest rate you pay, and therefore your monthly payments, can potentially go up or down each month. This might be due to changes to the Bank of England base rate, or your lender’s standard variable rate (SVR).
An SVR mortgage means your payments can fluctuate, which may be harder to manage if your income varies month to month.
Will I Be Able To Cover My Monthly Mortgage Payments?
While your lender will assess your mortgage affordability during your mortgage application, it’s a good idea to think about whether you are comfortable with your mortgage payments too. This is a question you need to answer before considering taking out a mortgage.
Remember, it’s not just your monthly mortgage payments you’ll be paying. As mentioned further down in this guide, buying a house will come with monthly bills to factor in, as well as ongoing maintenance costs of owning a home.
If your outgoings leave little room for flexibility, it may be worth reviewing your budget before progressing with a property purchase. You don’t want to be left struggling financially each month.
Questions to consider:
Will you be paying much more than you currently pay as rent?
Can you afford the bills on your new home?
Will you have enough money for repairs and maintenance to your home?
Do you have job security?
Have you got enough savings in case you lose your job?
Will you still be able to afford things you enjoy, such as nights out and holidays, when you have a mortgage?
Compare Mortgage Brokers
Accredited mortgage brokers
Used by over 1.5 million movers in the UK
How Much are Mortgage Fees?
When you take out a mortgage, it is not just the interest rate you need to think about, but mortgage fees too. These fees can add to the overall cost of buying a home and are often payable upfront, so it's useful to factor them into your budget.
Mortgage lenders must highlight all fees that are included in the mortgage as part of the annual interest calculation. This is known as the Annual Percentage Rate of Charge or APRC. Mortgage fees are usually listed in a document called the European Standard Information Sheet (ESIS).
The table highlights the most common mortgage fees included when you buy a property:
| Mortgage Fee | What is the Fee? | Average Cost (£) |
|---|---|---|
| Mortgage Broker Fee | This is the fee you pay to your mortgage broker for finding you a mortgage. Sometimes they don’t charge as they rely on getting paid a commission by the lender, but some lenders will charge a fee. | £0-£400+ |
| Arrangement Fee | An arrangement fee is paid to your lender for setting up the mortgage. You can choose to add it to your mortgage payments or pay upfront. | Usually £1,000-£2,000 |
| Booking Fee | A booking fee is charged when you apply for a mortgage. It’s often non-refundable, even if you don’t end up going ahead with the mortgage. | £100-£250 |
| Valuation Fee | A valuation fee is paid to your lender to carry out a mortgage valuation report which will value your property. It will reassure them that you can afford what you owe. | £75-£1,500 (although this can sometimes be free, depending on your mortgage lender) |
| Telegraphic Transfer Fee | A telegraphic transfer fee is what your mortgage lender will charge you for them sending the money to your solicitor. | £25-£50 |
Compare Mortgage Brokers
Accredited mortgage brokers
Used by over 1.5 million movers in the UK
Can I Afford To Buy a House?
Whilst your mortgage deposit is normally the biggest upfront cost involved in buying a house, there are other costs you need to consider. You will need to factor in additional fees such as house survey costs, conveyancing costs and removal costs, but there are other services people forget to budget for.
Some costs will have to be paid even if the purchase falls through. A study by MFS found that 39% of UK homeowners have had to pay costs to third parties even if they didn’t complete the sale.
Below we’ve listed the typical costs of buying a house at the average UK house price of £292,000:
| Service | When To Pay | Average Cost (£) |
|---|---|---|
| Solicitor Fees | Part will be paid upfront, usually £300 and the rest after exchanging contracts. | £1,743* |
| Surveying Fees | These are paid upfront on the instruction of your surveyor or through your mortgage lender if you use their referral. | £445* for a Homebuyers Survey. |
| Stamp Duty | Your conveyancer will pay this as part of the conveyancing costs, which you will pay back upon completion. Stamp Duty must be paid after you’ve bought the house. Use our Stamp Duty calculator to work out how much you’ll need to pay. | £2,100 |
| Council Tax | This is usually paid monthly to your local council. | This will vary depending on your postcode. |
| Utility Bills | You may already be paying utility bills, but if you’re moving out of your family home, expect to pay gas, electric, water and broadband bills monthly. | N/A |
| Maintenance and Repairs | Depending on the condition of the house you buy, you might need to pay for repairs. A property survey will be able to tell you areas of concern. Expect to pay for general maintenance and repairs when needed. | N/A |
*Based on the average service costs for Compare My Move users. See how our data works.
