What Lenders Really Look At For Affordability

One of the most common queries in the property world is around how much you can borrow, There are a lot of misconceptions around this. You’ve probably heard things like you can borrow four and a half times your income, but in reality there is no one-size-fits-all answer. Every single lender assesses your affordability differently. They each have their own unique criteria and means of calculating your affordability.

The Core Components of a Lender’s Affordability Calculator

While every lender’s calculator looks different, they all assess similar pieces of your financial puzzle. Here’s a breakdown of the key sections and what they mean for you.

Loan-to-Value (LTV)

This is a simple ratio that shows how much you're borrowing compared to the property's value.

• How it works: If you're buying a £700,000 property and have a £70,000 deposit, you need a £630,000 mortgage. (£630,000 / £700.000) x 100 = 90% LTV.
• Why it matters: Your LTV tier (e.g., 90%, 75%, 60%) directly impacts the interest rates you're offered.

Repayment Method

In most instances Capital and Interest (also known as a Repayment mortgage). The criteria for Interest Only Mortgages is much stricter, with minimum income requirements and a sound repayment vehicle at the end of the term. Repayment mortgages are where your monthly payments gradually pay off the loan amount and any interest due, with the goal of owning your home outright at the end of the term. By contrast interest only loans your mortgage  payment only covers the interest due, leaving a capital due at the end of the term. 

Mortgage Term

This is the length of your mortgage. The maximum term is often linked to your age, with many lenders allowing you to borrow until you're 70, 75, or even 80+ (particuarly for instances of buy-to-let). The most common maximum term is up to 35 years, though some lenders offer 40 year terms. A longer term means lower monthly payments, but more interest paid over the life of the loan.

Applicant and Income Details

This is where your financial power is assessed. It covers the Number of Applicants, Dependents: which is anyone who is reliant on you financially such as children. Your Employment Status: Are you employed or self-employed, a contractor or agency worker? Each can be calculated in a different way:

Employed (PAYE)

Base salary is always taken at 100%, whereas overtime commission or bonus pay will vary by lender and also be influenced on the level of variability. 

Self‑Employed

Lenders usually use net profits figures from the last 2 years (though some accept 1), with some also taking in to account salary or dividends if applicable. If profits are rising lenders either take the latest year only or an average of last 2-3 years, in instances where its falling most take the lower figure. Affordability assessment for self-employed individuals can be more complex,  there can be large differences in terms of each lenders assessment of how much they are willing to lend. 

Contractors

• Day‑rate contractors: many lenders annualize: day rate × 5 × 46–48 weeks
• Fixed‑term contractors: if continuity is shown, treated like a salary.
• Umbrella company contractors: treated like PAYE
• IR35 status: Inside IR35: treated like employed, whereas outside IR35: often treated like self‑employed 
  

 Agency / Temp Workers

• Continuity is key. lenders look for 12 months+ of consistent assignments.
• If steady: averaged and treated like PAYE.
• If irregular: discounted or only partially included.

Your Monthly Commitments 

This is the section that truly personalizes your affordability. Lenders need to see what other financial commitments you have that could affect your ability to pay your mortgage.

• Loan Repayments: Personal loans or credit agreements (e.g., for furniture).
• Hire Purchase / Car Finance: Monthly payments for a car on PCP or other finance plans.
• Other Mortgage Payments: If you will still own another property (e.g., your current home you're selling later, or a buy-to-let), you must declare the monthly mortgage payment. Some lenders may even factor in the running costs of that property.
• Maintenance & Childcare: This includes nursery fees, child maintenance, or spousal support payments. These are seen as ongoing, non-negotiable commitments.
• Credit Card Balances: If you have a credit card balance of, say, £3,000 that won’t be paid off by the time you complete on your mortgage, the lender will factor in a monthly commitment for it calculated at a percentage of the balance. 

Lets take an example to illustrate this: 

• Property price: £700,000
• Deposit: £70,000
• Mortgage required: £630,000 (90% LTV)
• Term: 35 years
• Applicants: Two adults
• Household income: Applicant A: £90,000, Applicant B: £80,000 Total: £170,000
• Monthly commitments: Personal loan: £600/month, Car finance: £800/month, Other mortgage: £1,500/month, Credit card balance: £10,000, £300/month minimum repayment. Total commitments: £3,200/month

How lenders would likely treat this

Base affordability (no commitments)

• 4.5× income: £170,000 × 4.5 = £765,000

• 5× income: £170,000 × 5 = £850,000

• 5.5× income: £170,000 × 5.5 = £935,00

With Commitments taken in to account 

The Bottom Line: It’s Personal

This is precisely why the "4.5x income" rule is a myth. Someone else, who has no children, car payments, or other loans, may well be offered 4.5x their income. But for you, with your unique set of financial responsibilities, the multiple could be lower.

Lenders aren't just being difficult. They are legally required to ensure the mortgage is affordable for you, not just today, but for the years to come. They want to avoid the scenario where you become overstretched and struggle to make payments.

Ultimately, a mortgage should allow you to live in your home, not just pay for it. Understanding affordability helps you find a home you can love and afford, without sacrificing your financial wellbeing.