How Is Mortgage Affordability Calculated?

Understanding how lenders assess what you can afford is key to preparing for a mortgage application. Here's a breakdown of what goes into it:

1. Income

Lenders will look at all sources of income, including:

• Basic salary (and overtime/bonuses if regular)

• Self-employed earnings (usually averaged over 1–2 years)

• Rental income, pensions, or investment income

• Benefit income in some cases (child benefit, DLA, etc.)

2. Outgoings

They’ll also assess your regular financial commitments, such as:

• Credit cards and loans

• Car finance or PCPs

• Childcare or school fees

• Other mortgages or rent

3. Lifestyle Factors

Lenders may ask about:

• Number of dependants

• Committed household spending

• Commuting costs

4. Credit Profile

A good credit score can widen your options. Lenders will check:

• Your credit history and any missed payments

• Existing debts and your use of credit

5. Stress Testing

They apply a “stress test” to check if you could still afford the mortgage if rates increased, even if they’re offering a low initial rate. Sometimes opting for a longer-term fixed rate (5 years plus) can allow you a more lenient stress testing model.

6. Loan-to-Income Ratio

Many lenders cap how much you can borrow based on a multiple of your income; typically 4.5x, though some go as far as 6.5x for strong applications.

Need help understanding your own affordability?

Every lender calculates things slightly differently. At MSP, we’ll take the time to understand your full financial picture and match you with the right lender, first time.

Get in touch today for a personalised assessment and clear, expert advice on what you could borrow.