Your mortgage application: The affordability checks to expect

The question “how much can I borrow for my mortgage?” is one of the most frequently asked. Thankfully, our independent mortgage advisors are here to help! Read on to discover the affordability checks to expect when applying for a mortgage during 2024 and how they could impact how much you can borrow for your property purchase.

How is mortgage affordability calculated?

The original mortgage affordability test was scrapped by the Bank of England (BoE) back in 2022. While stress tests do still exist to ensure you don’t borrow more than you can realistically afford to pay back, the criteria that lenders analyse in a bid to establish affordability is now determined by several other factors that go beyond your income.

The ‘loan-to-income flow limit’ still however plays a crucial role in how much applicants can borrow to purchase their properties.

What is the current LTI flow limit?

Put simply, the loan-to-income (LTI) flow limit is a ratio relied on by many lenders to determine how much can be borrowed for a mortgage based on income. This stands at between 4 and 4.5 times the borrower’s salary as it did back in 2022 when affordability rules changed.

The LTI flow limit is updated periodically by the Prudential Regulation Authority (PRA). It now isn’t the only factor considered by lenders during affordability checks. A move that has been welcomed by countless borrowers, including first time buyers with lower salaries and deposits, long term renters with low salaries but solid credit histories, and self-employed individuals looking to get onto or move up the property ladder.

What else is considered when assessing affordability?

There are a number of factors the average lender will examine when taking a closer look at affordability. This includes your employment status, total gross income, any regular outgoings, student loan repayments, childcare commitments, and credit history.

The rule relaxation back in 2022 means that lenders are a tad more flexible with their criteria, with individual circumstances analysed in more detail to determine affordability. Applicants who have been renting to date and able to pay high monthly rental costs on a regular basis may have failed the stress test before the 2022 rule change, even if mortgage repayments were lower than their current rental costs.

For individuals who have part of their income made up of bonuses, commission or overtime, selected lenders may also include these as additional earnings when calculating how much can be borrowed.

How can I prepare for affordability checks?

There are several ways you can manage your finances to boost your chances of being approved for a mortgage and avoid application delays.

Knowing your current credit score is a great place to start, and will set the benchmark for your financial health going forward. Start preparations early to improve your credit score and secure mortgage success. Crunching those numbers is another must for applicants as The Times Money Mentor explains:

“So in the months leading up to your mortgage application you should aim to keep your outgoings as low as possible. You might want to stop splashing the cash on anything beyond essentials. Mortgage lenders will also scrutinise your bank statements for signs you might struggle with existing debt. Avoid using overdrafts and pay down balances on credit cards, store cards and unsecured loans.”

Taking the time to save a bigger deposit could also open more doors when it comes to those mortgage options. 

Seeking advice from an independent mortgage broker like us is recommended too. Our experts know the mortgage market inside out, and understand the affordability criteria of each lender to ensure the product we suggest to you is the right fit for your specific circumstances.

 Speak to a member of our team today for further advice and support.