Mortgage affordability, in its simplest form, refers to whether a mortgage comfortably fits into your financial life. It's not just about having enough cash for a deposit; it's about ensuring your monthly repayments don't leave you juggling groceries and wishing you'd rented.
So, how is affordability determined? There's no magic formula, but lenders consider several key factors:
Income
Obviously, how much you earn plays a big role. Lenders will analyse your salary, employment stability, and any additional income sources. They will usually calculate your affordability at 4-4.5x your salary, but this isn’t a fixed formula.
Debts
Existing loans, credit cards, and even phone bills contribute to your borrowing power. The key here is to understand that lenders are considering your debt in your ability to make monthly repayments. The lower your existing debt, the more "affordable" a mortgage might be.
Expenses
Life's little costs matter. Lenders look at your living expenses, from groceries and bills to childcare and gym memberships, to estimate how much wiggle room you have for a mortgage payment.
Deposit
Putting down a larger deposit reduces your loan amount, lowering your monthly repayment and making the mortgage more affordable. If you can’t afford a big deposit, there are alternatives out there, which you can explore below. However, it’s worth considering if you should spend some more time saving. A mortgage adviser will be able to help you make this decision.
Alternative options to a big deposit
What is the mortgage guarantee scheme?
What is a gifted deposit?
All about Own New
Affordability calculators
If you’re unsure of whether you’d be able to afford a mortgage, or if you’re uncertain about your affordability for a certain property, one great method of determining this is by using our very own calculator.
All you will need is:
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Property and location information
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Deposit
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Income
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Monthly outgoings
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
Affordability mythbusting
When it comes to affordability, there can be some misconceptions, so let’s clear some of them up:
Myth: A huge deposit guarantees affordability.
While a larger deposit helps, lenders still consider your income, expenses, and debts.
Myth: Affordability means sacrificing everything you enjoy.
It's about balance. You can still have that weekend getaway with a well-managed budget.
Myth: It’s impossible to get a mortgage if you have bad/adverse credit
Getting a mortgage with bad credit can be difficult, but not impossible. Specialist lenders exist, though expect higher interest rates and stricter terms.
Be upfront with your mortgage adviser about your financial situation and lifestyle goals. A good adviser will guide you towards a mortgage that fits your unique needs, ensuring your homeownership journey is filled with joy, not anxieties.
Go forth, equipped with the knowledge of affordability! Explore your mortgage options, ask questions, and find a mortgage adviser who understands your dream.
Download the Mortgage Advice Bureau app
Our app is a digital mortgage coach designed to help you save up, plan, and track your home buying journey – whether you’re buying your first home, or just fancy a move.
We’ll guide you through step by step to ensure you always know what’s coming up next.
