Understanding mortgage affordability assessments

Determining the amount you can borrow is likely to be one of your biggest priorities when it comes to your mortgage application. As lending a substantial sum of money presents risks to both you and the lender, you have to make sure you can comfortably manage your payments for the duration of the mortgage term. 

With this in mind, one of the first steps in the mortgage application procedure involves an affordability assessment.

What does a mortgage affordability check entail? 

A lender will typically begin conducting an affordability assessment by examining your income and your committed expenditures, including regular bills and payments. This applies whether you're applying for a mortgage individually or as a couple.

Detailing your incomings

Information about your income is a crucial aspect of an affordability assessment. If you're employed full-time, this typically involves submitting your three most recent payslips, your latest P60, and your last three bank statements. 

Additional income from part-time employment, such as child support, benefits, or other sources, proof of these earnings will also be requested.

Self-employed individuals usually need to provide three years of audited accounts, endorsed by a qualified accountant, as well as two years of SA302 forms or equivalent tax records from their accountant, along with Tax Year Overviews. Recent bank statements for both personal and business accounts from the past three months are also required.

Outgoing expenses

The focus of the affordability assessment then shifts to your outgoing expenses. This allows the lender to ensure that your outgoings aren’t excessively high, to the point where your mortgage payments become a strain on your finances.

You’ll need to provide details on how much your outgoing expenses cost each month, such as Council Tax, utilities, mobile phone bills, and insurance policies. Any outstanding balances on credit cards, personal loans, or car finance agreements must also be accounted for. Lenders may even ask to review childcare costs, school fees, and maintenance payments for children/ex-spouses.

What’s the purpose of affordability assessments?

Although stress tests have been axed as of August 2022, lenders will still need to examine whether you could still afford your mortgage, which is why it’s important you have all the necessary documentation.

While there’s plenty to think about and prepare for ahead of submitting your mortgage application, affordability assessments are designed with your best interests at heart. The purpose of these are to help you to avoid any potential financial difficulties by ensuring that your loan repayments are manageable and within your means. 

Getting prepared

Ahead of your mortgage appointment, it’s good practice to organise your required documents ahead of schedule. Not only can this make the process more efficient, it also demonstrates that you’re putting your best foot forward and are committed to your homeownership goals.

For any questions about your mortgage eligibility, or an upcoming appointment, please don't hesitate to contact our expert advisers. We're here to assist with any inquiries, no matter the size. Alternatively, you can explore further insights about securing a mortgage.