How is affordability calculated

InsideInsurance

Appreciate the finer detail is going to vary between lenders but in general principles how are these things calculated?

Is it net income minus other debts minus some standing cost per living amount and then the mortgage must be less than some proportion of this?

Is it based on gross income with an assumption on what net will be?

Is it based on studying current account statements?

I was just wondering as we are getting close to buying and just wondering how these things are calculated as the numbers being run are easily affordable with plenty to spare even with double interest rates but a fair amount of business expenses flow through my chargecard and I understand that expenses payment arent considered in the calculations and so if you take income - card payments things look tighter than income + expenses - card payments.

Secondly, having a good income, no kids etc we have until now enjoyed a fair amount of holidays, dining out etc but have no outstanding debts (other than a PCP car). Even with this lifestyle the mortgage looked for would be affordable (its only a bit more than our current rent) but our intent is to get a property and then start a family etc so calm down on other aspects. Does high spending on holidays etc get taken into account by mortgage companies, esp if it flows through a credit/ charge card but is paid off in full?

marshmallowkisses

InsideInsurance wrote: »

Appreciate the finer detail is going to vary between lenders but in general principles how are these things calculated?

Is it net income minus other debts minus some standing cost per living amount and then the mortgage must be less than some proportion of this?

Is it based on gross income with an assumption on what net will be?

Is it based on studying current account statements?

I was just wondering as we are getting close to buying and just wondering how these things are calculated as the numbers being run are easily affordable with plenty to spare even with double interest rates but a fair amount of business expenses flow through my chargecard and I understand that expenses payment arent considered in the calculations and so if you take income - card payments things look tighter than income + expenses - card payments.

Secondly, having a good income, no kids etc we have until now enjoyed a fair amount of holidays, dining out etc but have no outstanding debts (other than a PCP car). Even with this lifestyle the mortgage looked for would be affordable (its only a bit more than our current rent) but our intent is to get a property and then start a family etc so calm down on other aspects. Does high spending on holidays etc get taken into account by mortgage companies, esp if it flows through a credit/ charge card but is paid off in full?

I was at a mortgage adviser appointment this morning and she gave us rough information on how it was calculated:

It's a joint application with my partner and she looked at our salaries (net monthly) - my partner gets paid weekly so she took a look at 13 weeks and did an average. She then added our monthly pay together.

From this, she asked about credit card balances and mentioned they just look at 2.5% of this (maybe someone can clarify this further).

Then she asked about all insurances, phone bills, utility bills (gas/electric/heating if other), loan payments, council tax and any other regular DD's for household stuff and added them then deducted those leaving us with what was available.

The lady was then going to look at our affordability and look closer at our bank statements to see what was going in and out.

Sure you will be fine!

ACG

With regards to debts, it varies like you say but one way is multiply the monthly payments by 12 and deduct that from your wage before multiplying your income up. Its never an exact science but it should get you in the ballpark area.

Lenders will not be too concerned by your general spending habits (unless it has things like gambling in it). So long as your not permanently in your overdraft you should be fine.

kingstreet

TBH I now use the most likely lender's online affordability calculator. It asks the questions the lender wants answered and makes the right assumptions for things it doesn't.

Certainly with the lenders we use most regularly, the output from the affordability calculator is matched £ for £ when we actually submit the agreement in principle or full application. That makes them pretty reliable.