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Mortgage Affordability

Home ownership is a significant milestone for many people in the UK, and yet mortgage affordability is a topic that is understood by relatively few. Understanding what mortgage affordability means, how lenders calculate it, and the various factors influencing it is essential for prospective homebuyers and those advising them.

Importance of Affordability

Mortgage affordability in the UK is a multifaceted concept influenced by your personal finances, government policy, the economy and market factors. Getting yourself in the best position you can before you apply for a mortgage, will increase your chances of being able to afford it comfortably, bringing you one step closer to the dream of home ownership. If you’re looking for a provider which provides mortgage solutions based on real customers needs and affordability, speak to Bluestone Mortgages. The complex credit mortgage lender that puts consumers first.


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Affordability Breakdown

Below, we cover the topic of mortgage affordability in simple, easy-to-understand English to help would-ve homebuyers navigate their way onto the property ladder!

What is Mortgage Affordability?

Mortgage affordability is the ability of a borrower to comfortably meet their mortgage repayments based on their current financial circumstances. In the UK, lenders are required to do this by the central regulator, the Financial Conduct Authority (the FCA). Lenders work this out by looking at an individual’s income, existing debt, credit history, and other factors. The goal is to ensure that borrowers are able to repay their mortgage comfortably, and reduce the risk of defaults for lenders. This ensures a stable and sustainable housing market for all.

How Are Mortgage Affordability Scores Calculated?

To calculate a mortgage affordability score, a lender will look at an individual’s net income (their income minus expenses). They will also look at any committed expenditure they have like debt repayments, car finance, BNPL payments and even student loan repayments. After this, the lender will decide what multiple of that individuals’ income they are prepared to lend to them for a home. Typically this is 4.5 times a person’s salary. So if an individual earns £50,000 per year, they would be able to take out a mortgage worth £225,000. Two individuals say, a couple being offered the same multiple, would be able to jointly take out a mortgage worth £450,000. Lenders may also consider the size of the deposit being put down by the buyer, a bigger deposit (e.g. 20%) means a lower Loan To Value ratio (i.e. 80%), which may result in a higher earnings multiple.

Does the Cost of Living Affect Affordability?

It absolutely does. The rising cost of living is a result of the prices of goods and services rising more quickly than income does in a short space of time. This increased cost of living reduces an individual’s disposable income how much they have to spend making borrowing more difficult. People experiencing particular financial strain may be more likely to resort to debt, affecting their debt utilisation and credit history, making their ability to take out a mortgage more difficult. To top this all off, the UK’s central bank, The Bank of England responds to inflationary pressures by raising interest rates, which makes debt more expensive, increasing mortgage rates, making them even more expensive still.

Mortgage Affordability Tips for Prospective Buyers

For prospective homebuyers in the UK, getting yourself into the best possible position before applying for a mortgage is paramount. Here are some points to consider:

  • Assess your financial situation: maximise your income, pay off any debts, and keep your expenses as stable as possible.
  • Build a strong credit history: this will enhance your chances of securing favourable mortgage terms.
  • Save as big a deposit as you can: the bigger your deposit, the smaller the loan amount, the lower your monthly mortgage payments and and potentially the better your interest rates.
  • Familiarise yourself with various government schemes: there are a number of schemes set up to help people get on the property ladder, including Shared Ownership, the First Homes Scheme, Right to Buy, the 5% Mortgage Guarantee Scheme, the Lifetime ISA. Using any number of these could help to increase your chances of getting the home and mortgage you want.
  • Work with experienced professionals: using a mortgage broker or a specialist lender could help buyers in special circumstances such as those with adverse credit, limited budgets or the self employed.
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Mon-Fri 9:00am – 5:30am.
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