Credit Score Basics > How to check your mortgage affordability

How to check your mortgage affordability

Wollit Team3 minute read · Updated 1st July 2024

To check how much you can borrow for a mortgage in the UK, the best way is to use one of the online mortgage affordability calculators provided by lenders and financial institutions on their websites.

These calculators look at your income, expenses, and other factors to give you a rough estimate of the maximum mortgage amount you can afford.

How do mortgage affordability calculators work?

Mortgage affordability calculators are tools that help you figure out how much you can borrow for a mortgage, based on your financial situation.

When using these calculators, you'll usually need to type in the following information:

Your annual income (before taxes).
Your monthly expenses, such as credit card payments, loans, and other commitments.
The size of your deposit or down payment.
The type of mortgage you're interested in (first-time buyer, remortgage, buy-to-let).
The mortgage term (the number of years over which you'll repay the mortgage).
And the value of the property itself.

The calculator will then calculate an estimate of the maximum mortgage amount you could potentially borrow, as well as an indication of your monthly mortgage payments.

However, you need to remember that the results from these calculators are just estimates and don't constitute a formal mortgage offer. You can’t hold a bank or lender accountable simply because their website calculator gave you some number.

To get a slightly more formal indication of what you can borrow, you need to apply for a mortgage in principle.

Even so, once you go ahead with the full application, lenders will still need to assess your full financial situation, credit history, and the property you're looking to purchase before making a final decision on the amount they're willing to lend you.

What do lenders look at when calculating my mortgage affordability?

When you apply for a mortgage, lenders will look at several factors to calculate how much they're willing to lend you. Here are some of these factors:

Income. This includes your salary, bonuses, and any other regular sources of income. They usually use a multiple of your income to calculate the maximum mortgage amount you can borrow, usually around 4-4.5 times your annual income.
Expenses. Lenders also consider your monthly expenses, such as credit card payments, loans, other regular bills, and even how much you spend taking care of your potential dependents (like kids or elderly parents). Lenders basically want to make sure that your mortgage payments, along with your other expenses, won't exceed a certain percentage of your monthly income, usually around 30-40%.
Deposit. The size of your deposit or down payment can also affect the amount you can borrow. Lenders generally require a minimum deposit of 10% of the property's value, but a larger deposit can increase the amount you can borrow and potentially get you a better mortgage rate as well.
Property value. The value of the property you're looking to buy is also a factor in calculating your mortgage affordability. Lenders will usually lend up to a certain percentage of the property's value, known as the loan-to-value (LTV) ratio. The lower the LTV, the more you can borrow.
Credit history. Your credit history and credit score play a crucial role in the mortgage application process. Lenders will check your credit report to assess your creditworthiness and determine the risk of lending to you. While your credit score doesn’t directly affect your affordability, a good score can help you qualify for a larger mortgage amount and better interest rates. By having a lower mortgage rate to pay, your affordability will indirectly improve.

How can I improve my mortgage affordability score?

If the initial mortgage affordability calculations show that you can't borrow as much as you'd like, there are a few steps you can take to improve your chances:

Save for a larger deposit. This can significantly increase the amount you can borrow. A higher deposit also means a lower LTV ratio, which can make you more attractive to lenders and potentially qualify you for better interest rates.
Cut back on your monthly expenses. While hard to do, this can also improve your affordability and increase the amount you can borrow. Lenders will see you as having more disposable income to put towards your mortgage payments.
Consider a longer mortgage term. A longer mortgage term, such as 25 or 30 years, can reduce your monthly payments and increase the amount you can borrow. However, this will also mean you'll pay more interest over the life of the loan.
Finally, improve your credit score. Again, this will have a roundabout effect on your affordability, although a very strong one. By letting you qualify for lower interest rates, a better credit score can help you reduce your monthly payments significantly and let you improve your affordability by quite a bit.

Here’s an example: let’s say you’re taking a 30-year mortgage for a property worth £500,000, which is quite low by London prices. You put down a deposit of £100,000. Since a move from one credit score band to another can mean as much as a 1% jump in the mortgage rate, you could be looking at over £90,000 paid simply because the bank perceives you as riskier. Not having to pay this can improve your affordability significantly.

This is why it’s so critical to work on your credit score before applying for a mortgage.

One of the ways to ido this is to download a credit-building app like Wollit.

Wollit works by reporting a fixed fee monthly subscription as a loan repayment to the credit reference agencies (Experian, Equifax, and TransUnion).

Eventually, using a credit-building app will help you improve your credit score so you can pay less in interest, making the mortgage more affordable without you cutting back on essential expenses or compromising on a smaller home.