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Affordability
Saga
Posts: 303 Forumite
Can someone please explain how mortgage lenders assess affordability?
From what I can gather, the proposed mortgage repayments + monthly essential costs (i.e. committed spend) should be less than 40% of net monthly income (after tax). Then with a stress test (3% increase in mortgage interest rate) the above proportion should be less than 45-50% of net monthly income.
Can someone confirm if this is generally correct?
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100% debt-free!
100% debt-free!
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Comments
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Each lender had their own affordability model. A guide is roughly 4.5 x your income.If you want to be more accurate either see a broker or go onto some lender websites and enter your details accurately into their affordability calculators.I am a Mortgage AdviserYou should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0
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The AIPs from lenders' websites all seem to suggest they will lend a lot more (4.45x) than estimated by the Money Advice Service affordability calculator (3.5x). Who to believe? I don't want to be led into a false belief that lenders will give more than reality and have a mortgage application rejected.
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100% debt-free!0 -
Err Lenders rather than Money Advice Service! And yes, it can vary between all different providers depending on how the calculate certain costs and their appetite for businessI am a mortgage broker and IFA. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice0
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Stress tests are based on the lenders SVR plus a margin nearer 2%-3%. Not a 3% increase on "current" mortgage rate. The PRC works on the basis of a return to normality at some point in the future. Where BOE base rate will be nearer 3.5-5%.0
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