First time buyer guide


Affordability Explained

Buying a property is no joke. In order to be successful with your mortgage in the long term, you'll have to examine your affordability, that is, you'll need to know that you can actually afford to buy a house.
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You’ll have to take into careful consideration what your income is, how much you’re regularly spending and what assets – savings included – you own.

What is an Affordability Assessment?

Lenders out there will need to know the ins and outs of your finances and will carry out an affordability assessment before they lend you a single penny. The idea is that you’re able to pay what you owe comfortably rather than being pushed to dangerous limits.

When buying a property, it´s only natural that you’ll lust after the biggest one, but don’t forget the money you might need in order to do work on your newly acquired home and there’ll still be bills to pay, holidays, groceries and all those little things that add up and could have you falling behind with your mortgage.

How Is an Affordability Assessment Carried Out?

Nowadays, when you apply for a mortgage, the lender will determine how much you can afford to borrow. How? By looking at:

  • Your income: your basic salary, savings, money from investments or pension, child support and family support
  • Your outgoings: credit card repayments, bank loans, bills (electricity, water, phone), life expenses (clothes, childcare, travel, pets)
  • Unexpected changes in the future: having a baby, taking a career break, being made redundant, interest rate rises, illness

Looking at all these things should get you an affordable mortgage, and the lender will try to determine how much your monthly payments will be after considering your personal and living expenses. Be ready to provide evidence of your income (pay slips, bank statements) as well as of your outgoings (estimates of general living costs). A credit rating will also be carried out by taking a look at your credit report (credit card repayments, other loans, maintenance). Yes, it’s a lot of detail to share but you really need to get on a ship that won’t sink.

Why Should I Consider Affordability Before Asking for a Mortgage?

Since mortgages are tricky for both you and the lender, it’s important that you both establish you’ll have the resources to pay for the duration of your mortgage’s term.  However, there’s a far more important aspect you should consider: affordability will set the limits on how much you can really borrow and, therefore, will be crucial in deciding what type of home you go for.

How Much Can I Borrow?

Before you take that path, you’ll have to figure out what your general budget is, in other words, how much money you have at your disposal to pay for everything. So, when you’re trying to work out how much you can afford, remember to take into account costs other than the mortgage itself.

Lenders have different criteria when it comes to calculating how much they’ll lend you, but what they’ll surely ask you for is to take out building insurance to protect your house. You might also have to pay Stamp Duty, estate agency fees, solicitor’s fees, the costs of moving from your present home, mortgage adviser fees, etc. All these could have a significant impact on what you finally decide to borrow. Read our The True Costs of Buying a Home article for a lowdown on these costs.

How Do Lenders Assess My Affordability?

Lenders will look at your income and your expenses to “stress test” (see what financial impact changes like a rise in your mortgage repayment, being made redundant, etc would have on you) your finances before letting you borrow any cash.

If you’re self-employed, lenders will assess in the same way, but since you won’t be able to provide them with any pay slips, the process will be more demanding.  They’ll want proof that you have a solid track record despite your income fluctuating from month to month.

What Should I Do Before I Apply for a Mortgage?

In order to cut yourself the best of deals, it would be a good idea to pay off any credit card debts and personal loans. Checking how and on what you’re spending money can do you no harm either: it might be a great time to cancel that newspaper subscription or look for a cheaper motorbike insurance. Every little counts.

Affordability check-ups are now more demanding than they used to be. Remember that, as well as being able to afford to buy a house, you also have to be able to afford to actually live in it. Understanding affordability is in your best interest, you don’t want to end up with your house repossessed or sleeping in the garden for want of a bedroom!