How do mortgage affordability checks work?

When applying for a mortgage, your main concern is typically to find out how much you can borrow.

Given that borrowing a large amount poses risks for both you and the lender, it’s crucial to prove that you can afford the repayments for the duration of the term of the mortgage. Therefore, an affordability assessment is one of the initial steps in the mortgage application process.

What is a mortgage affordability check?

Typically, to conduct an affordability assessment, a lender will evaluate both your income and your committed expenditure, which includes bills and other regular payments. This process remains consistent whether you’re applying for the mortgage individually or jointly.

What are your incomings?

As part of this process, you’ll need to verify your income. If you’re an employee, this typically involves submitting copies of your most recent three payslips, your latest P60, and your last three bank statements. Additionally, if you receive any supplementary income, such as from part-time employment, child support, or benefits, you’ll need to provide evidence of these sources.

For self-employed individuals, the usual requirements include supplying three years of audited accounts, authenticated by a qualified accountant, along with two years of your SA302 or equivalent tax computation from your accountant, as well as Tax Year Overviews. You’ll also need to provide bank statements for the previous three months for both your personal and business accounts.

Following this, the next step involves documenting all your outgoings. This is important as the lender needs to ensure that your expenses are not excessively high to the extent that making monthly mortgage payments would lead to financial difficulties.

What are your outgoings?

You will need to provide information regarding your monthly expenses, including items such as Council Tax, utilities, mobile phone expenses, and any active insurance policies. Additionally, you’ll be queried about any existing credit card or store card debts, personal loans, or car finance agreements, along with details of outstanding balances. Childcare expenses and school fees, as well as any maintenance payments for children or former spouses, will also be factored into the assessment.

While this may seem daunting and time-consuming, it’s important to recognize that affordability assessments are structured to ensure that the loan amount is comfortably repayable, so that you don’t end up in financial difficulties. You can help to speed up the process by organising your documentation before your mortgage appointment. And remember, the effort invested will pay off, as once you find out your borrowing capacity, the exciting step of house hunting can start!

For further information on mortgage applications, don’t hesitate to reach out to our team of mortgage advisers. Request a callback from our team online or call our office on 01634 968111.