Personal Finance · Explainer
What a mortgage lender actually checks
Affordability testing has largely replaced simple income multiples — and it is stress-tested against a higher rate than the one you are offered.
The short answer
- Lenders test whether repayments remain affordable at a higher assumed rate.
- Committed outgoings and dependants reduce borrowing capacity as much as debt does.
- The deposit changes the loan-to-value band, which changes the price of the loan.
A mortgage decision combines three assessments: whether the borrower can service the loan, whether the property is adequate security, and whether the file meets the lender's policy. Applicants usually focus on the first and are surprised by the other two.
Affordability, stressed
Rather than a flat multiple of income, lenders model net income against committed expenditure and then repeat the calculation at a rate above the contractual one. The stress rate is the reason an approval can be smaller than a quick online estimate.
What counts as a commitment
- Existing loan and card payments, including buy-now-pay-later arrangements.
- Childcare, school fees, maintenance payments and dependants.
- Ground rent, service charges and mandatory insurance on the property.
- Committed pension and student loan deductions where applicable.
Loan-to-value drives the price
Rates are banded by loan-to-value. Crossing a band boundary with a slightly larger deposit can lower the rate on the entire balance, which is often worth more than the extra cash contributed. Valuations can come in below the agreed price, which raises the effective LTV and forces a top-up.
Sources
- Mortgage basics — CFPB
- Responsible lending rules — Financial Conduct Authority
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