Mortgage affordability is calculated with strict adherence to guidelines set by lenders to ensure that borrowers can afford to make their repayments not only at current interest rates but also in the event of potential interest rate increases. In light of the current cost-of-living crisis, proving one's ability to make repayments in the face of hypothetical future circumstances can be especially challenging.

One crucial factor that lenders consider is an applicant's spending over the three months preceding their mortgage application. Therefore, it is advisable to live below your means for at least several months before applying for a mortgage. Additionally, first-time borrowers should aim to save as much as possible towards their deposit to mitigate risks to the lender and potentially reduce the level of scrutiny applied to their financial history.

Income calculations

If you receive overtime income, bonuses and/or allowances, this can be taken into consideration, lenders prefer when this is guaranteed income but if this is irregular income, a percentage may be used towards your affordability. You will need to provide evidence of all types of income that is being used to repay your mortgage payments, you may need 3, 6 or 12 months worth of payslips or a P60 to show the lender what you earn.

Certain benefits can be used to help fund your mortgage such as:

• Attendance Allowance Benefit
• Carer's Allowance Benefit
• Child Benefit
• Child Tax Credit Benefit
• Disability Living Allowance
• Universal Credit
• Personal Independence Payment (PIP)

Many lenders have certain criteria that you will need to meet for them to consider your application. For example, you may have to be receiving the payments for a specific amount of time before you can be accepted for a mortgage, this can be to evidence the sustainability and if the payments are likely to continue moving forward.

For more information on complex income mortgages click here

Current monthly commitments

When you take out a mortgage there are a number of factors to consider but your affordability is the main one as this determines how much you can borrow. The lender or broker will ask you if you have any monthly commitments such as:

• Loans
• Credit cards
• Cars on finance/lease
• Mail orders

It is important that you are open and honest when providing this information as the mortgage lender can get access to your credit history when they conduct a credit check. As these are monthly direct debits the lender will use them towards your affordability until they are paid off as you will need to budget for them in your regular monthly outgoings.

Downloading your credit report can be very beneficial if you aren't sure about the strength of your profile. Lenders will also look at things such as missed payments, defaults and County Court Judgements (CCJs) on your report, the mortgage provider needs to know they can rely on you paying the mortgage payments. If you are looking to improve your credit, click here for some tips.

Income is a decisive factor in mortgage affordability calculation. For borrowers with unguaranteed bonuses or erratic income, lenders may only consider 50% of this total income. However, each lender operates differently, so consulting with a lender or a broker is strongly recommended.

Overall, it is evident that mortgage affordability checks can be rigorous and challenging, given the strict guidelines set by lenders. Therefore, potential borrowers should strive to maintain good spending habits and adequate financial history to increase their chances of success.

If you are looking for a mortgage, contact us today at 0151 662 0188 or email [email protected].