How do affordability assessments work?

RNM_92

This is something I know virtually nothing about being a first time buyer and it's also something I'm very concerned about as I don't want our application to get rejected over it. I've tried reading up about it but what I've read is often vague or conflicting. Unfortunately the main mortgage broker is away until next week so I can't ask him for the time being.

How strict is it? How much do they focus on discretionary spending? Do they look to see how much money you have at the end of the month? We both rely on my fiance's wage as I am disabled, so it concerns me that they'll decide we don't have enough money (trying to borrow 4.5x). Btw the mortgage payments for the one we've applied for would be the same as what we're currently paying in rent.

We have no debts (other than student loan), around a third of his take home pay is disposable income after essential costs like rent, bills and food have been taken into account, and we always save at least £100 every month, often more. We keep a ledger and track spending, so we make sure we never overspend. Sometimes we shuffle things around a bit though so something paid in the current month could be taken out of last month's money in the ledger if there was loads of money left at the end of that month. Obviously though this won't match up on the bank statements which worries me. 

My fiancé does treat me to some things but I often buy things like clothes myself through money I earn doing surveys. Obviously I can't include that as income though.

My fiancé does do a bit of work for a friend who's doing his house up for extra money, obviously this won't be included in the income assessment, but I don't know what they'll think of it when they see it on his bank statements. It means we have a bit of extra money that month but obviously our spending can go up to match it, so I don't know whether they'll see we're spending more than my fiancé is earning from his main job and count it against us, despite having at least £100 left. There's also other things like him buying stuff for people and getting paid back for it (eg bought an extra tank of petrol than we normally use to go and feed a friend's cats for a fortnight, which he paid us back for), him buying bits to do up his mum's kitchen for his brother (who's buying him out of the flat to live in), which came to a few hundred quid which was just deducted from his brother's inheritance money, and things like the estate agent's identity check fee and some upfront solicitors fees, which are being accounted for in our moving costs. I don't know how things like this are seen?

There's also the stress testing too. I know its no longer compulsory but I'm aware that they often still do it anyway. We could afford to pay it if it went up by say £300 a month, but obviously we'd have to cut back our discretionary spending. Do they expect you to have the exact money left over at the end of every month to cover it potentially going up, or are they just happy that you can cut down non essential spending to pay it? 

So is it like this or am I getting ahead of myself? I'm really worried about it. Do we actually have a chance of passing it? Our mortgage application is with NatWest just incase anyone knows anything more specifically about their affordability assessments. Also our broker used our bank statements as part of finding us a deal, so I presume they've already done some kind of affordability check already?

kingstreet

Lenders have online calculators to tell you how much you can borrow. If you enter the required information correctly the output is normally correct. Most of what you mention is unnecessary micromanagement which won't be noticed/included.

comeandgo

If your fiancé is not declaring the income from his mates to HMRC, can I suggest it does not go into the bank account.  You are leaving a clear audit trail for any HMRC investigation.  

Suitcasesparks

A lender will typically take your earnings (note only sustainable earnings like salary, so you're right the odd payment from elsewhere won't count) and compare them with typical outgoings based on the usual expenses someone with the same household composition as you would have plus your mortgage payment assuming the rate is several percent higher than the rate you would pay at the start of the mortgage (I.e the stress test). They will definitely stress your mortgage payment, even since regulations changed no lender will just stop carrying out stress testing, and in fact the stress is likely to more severe now following events over the last week. They'll use your bank statement to verify that your expenses are in line with the averages used and if your actual outgoings are materially higher than is typical they will use the higher value.

Discretionary spending is considered but often they do take into account that if you needed to you would cut back on non essential spending to prioritise your mortgage payment.

Ultimately as some one has already said, be honest and if the loan is affordable you will pass. If it isn't, it's probably for the best...do you really want to take a loan that you won't be able to afford if/when rates rise?