How Are Mortgages Worked Out?

People are often confused about how mortgages are worked out because the rules changed in the UK mortgage market back in 2014.

How are mortgages worked out in 2019? Lenders work out how much you could borrow based upon affordability. Gone are the days when you would receive a mortgage based upon a multiplier of your salary, these days your lender will look at your application based upon your income and spending – your mortgage will be based upon what you could afford to pay back on a monthly basis.

At first this seems quite black and white but it’s not and how much you could borrow depends upon your circumstances depending upon where are you are in the property ladder.

How Mortgage Affordability Is Worked Out

Each lender has a different criteria but on the whole there is common ground and is based upon:

  • How much money you make each year. Generally lenders ask to see three month’s worth of payslips (this is different for self employed people – see below).
  • How much money you spend on outgoings. These will be things like:
    • Any credit card debts
    • Any loans that are outstanding
    • Child maintenance
    • School fees that you need to pay
    • Travelling expenses
    • Regular bills such as Council Tax, utilities etc

It is likely that the lender will want to “stress test” your finances which is another way of saying “what will happen if x,y,z occurs” so if the interest rate increases what would then happen to your ability to repay your mortgage.

This is why lenders are assessing you – it’s all about their risk of lending you money and your track record and ability to repay if things don’t work out as planned. Your lifestyle will be taken into account too such as how often you go on holiday and how much you spend on food each month. Knowing this information will reveal the possible financial impact of any changes that occur.

How Mortgages Are Worked Out For The Self Employed

If you are self employed then you are not likely to be able to get a mortgage by using payslips. Instead lenders like to see tax returns and a copy of your accounts which will need to be certified by a chartered accountant.

The amount of years required will vary from lender to lender but is usually between 2 and 3 years worth of tax returns and accounts. In some circumstances you may also be asked to provide a business plan and evidence that you have enough work booked in to show that you will be able to provide finances each month for some time to come.

mortgage affordability rule of thumb

What Size Mortgage Can You Get? These 4 Questions Will Determine This…

  1. What size deposit do you have?
  2. What is your income?
  3. What are spending that income on?
  4. What is the state of your credit score?

These are the four general questions that will determine the size of your mortgage.

How Much Can You Borrow?

Here are a selection of mortgage calculators from some well known lenders to get a rough estimate of how much you could borrow, remember even after you have an idea of the amount it is still worth speaking to a mortgage broker to get the best deal possible.












Your Current Financial Circumstances Will Change Once You Move

People who are moving house potentially have equity in their current property and if this is you then you may be thinking of using some of this to clear any debts or to give yourself breathing space with savings. Also, your finances at the point of your mortgage application are likely to be quite different once you are in your new home.

If you are a first time buyer then you probably have a lump sum of money ready for your deposit but perhaps no savings. First time buyers are usually frugal and have been saving for some time to get their deposit and this is reflected in the way you budget each month and how your credit score is calculated.

Mortgages - how much can I borrow


What To Do If You Fail An Affordability Test

If you don’t get the amount you wanted in the first instances then don’t despair. It is horrible to lose the house that you are after but use this as a wake up call to put your finances in order.

It may be possible that the lender WILL lend to you but just at the amount that you originally applied for and if this is the case then you may be able to make the difference up by providing a larger deposit. Remember you can always look at Government schemes too such as Help To Buy to help your purchase.

As a recommended course of action though you should first of all pay off your debts.

Paying Off Your Debts

If you pay off your debts then you this will have a huge impact on affordability so it’s important that this be seen to be the case before you apply for the mortgage.


By carefully budgeting you are showing lenders that you are financially responsible. This includes things like cancelling any subscription (even the gym that you hardly use), shopping in cheaper supermarkets, not having as many holidays, buying less clothes etc. There are plenty of online resources for budget advice and we won’t go into it here but you know the type of things that you would need to do in order to stop spending and start saving each month. Every penny earned is a penny toward your financial health, if you spend it you will lose it.

Helping You Get An Affordable Mortgage

Be prepared to divulge a lot of details about yourself when applying for a mortgage! It quite often takes somebody else to look at your finances objectively to be brutally honest with you. If you use the services of a mortgage broker then they will be able to advise you prior to applying if there are any steps you need to take before your application is successful.

Why Mortgage Comparison Sites Are Rubbish

There are more mortgage types out there than people realise and while it is convenient to apply to a high street bank or building society this quite often is not the way to get the best deal for your circumstances.

Most people recognise a mortgage as either being a capital repayment or interest only but there are mortgages that are linked to your savings, pay cash back upon completion, mortgages suited for the self employed and all sorts of deals that you probably haven’t considered.

Our advice is to speak to a mortgage broker rather than use a comparison site and this is because you won’t get a true representation of what is out there by moving sliders around on a webpage. Mortgage brokers often have exclusive deals that are not available in other places too.


People also ask:

How much can I borrow for a mortgage with this deposit?

We have included some links above which will take you to some of the more well known high street lenders. Use these calculators to get a rough estimate of how much impact your deposit will have on the amount you can borrow and then come back to read the rest of the advice in this article.

What is a mortgage affordability rule of thumb?

Lenders no longer give a rule of thumb answer for how much you can borrow, instead it is worked out on affordability. Consider the other information in this article and use the mortgage calculators shown above to find out how much you could potentially borrow and then work out your affordability and how much you are comfortable repaying.

How many times your income can you borrow for a mortgage?

This way of figuring out how much to lend a borrow ceased in 2014. Mortgage lenders now work out how much you will be able to borrow based upon affordability which is calculated based upon your income minus any expenditure, the size of your deposit and how good your credit score is.

How much mortgage can I get if I earn 30000 or 60000 a year?

We have included links to some of the more well known lenders in the article above. Use these to get a rough estimate of how much you would be able to borrow – how much is determined by your deposit amount and how risky the lender deems you to be based upon other factors.

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