How to assess your affordability when taking out a mortgage

Posted on

As house prices reach record highs, assessing affordability when you’re buying is more important than ever. It can help you search for properties within your budget and ensure your long-term finances are secure.

Over the 12 months to August 2022, the average house price increased by 11.5%, according to the Halifax House Price Index data. The value of a typical property in the UK now exceeds £290,000.

Whether you’re a first-time buyer or are looking to move up the property ladder, it’s vital you consider how rising house prices may affect affordability. A mortgage is often one of the largest loans you take out and you’ll likely be making repayments for decades.

So, having confidence in your ability to meet this financial commitment is essential.

Lenders will assess your affordability when reviewing your application

When you apply for a mortgage, lenders will carry out affordability tests. This will include looking at your income and other outgoings.

Lenders may also assess how well you’d cope if your mortgage interest rate increased. Interest rates are still low but high levels of inflation mean that they are gradually rising. As a result, if you choose a variable- or tracker-rate mortgage the interest rate, and your repayments, may increase too.

Before you apply for a mortgage, it’s a good idea to consider what information a lender will use when conducting an affordability check. This can help you flag potential issues and resolve them.

Providers will use your credit report to assess the likelihood that you’ll default on your repayments. You can review your own credit report for free without affecting your score. Make sure all the information is correct and assess if it contains any negative factors.

A low credit score or negative factors don’t automatically mean you can’t take out a mortgage, but you may need to approach a specialist lender.

Lenders may also check your bank statements. They will check for red flags, such as frequently using your overdraft, using a payday lender, or spending on gambling.

Assessing your affordability can give you confidence

While a lender may carry out affordability tests, conducting your own can be useful and give you confidence.

You should consider what disposable income you need to live the lifestyle you want, and how paying a mortgage could affect this. By doing your own affordability test you can ensure your finances reflect your priorities and other long-term goals.

It also means you can understand your position before you apply for a mortgage.

A good place to start is to apply for a “mortgage in principle”.

A mortgage in principle gives you an idea of how much you can borrow. You can fill in an application with a lender and it usually won’t affect your credit rating. It means you can get a rough idea of how much your repayments will be and how the amount you want to borrow will affect them. It can also help you understand what interest rate you’re likely to pay.

Keep in mind that a mortgage in principle isn’t a guarantee, as lenders won’t carry out a full credit check and may request more information when you apply for a mortgage.

You can also use online calculators to see how changing the mortgage term or interest rate would affect your ability to make repayments. This can mean you’re able to plan better for future rate rises and know you have room in your budget to accommodate them if necessary.

Taking some time to assess affordability yourself, rather than relying solely on a lender’s test, is useful. Not only can it give you confidence, but it can also ensure your budget can stretch far enough to meet other goals that a bank may not consider. For example, you may want to put money away for retirement or create a holiday fund.

This step can help you balance home ownership goals with other things that may be important to you.

Do you want help understanding your affordability?

Navigating buying a new home can be difficult and it means making large decisions. If you’d like some support, we’re here to help.

We can work with you to understand what would be affordable and, once you’ve found your next home, assist with applying for a mortgage. Our team can help you approach the lenders that are right for your circumstances and could secure you a more competitive interest rate to cut your repayments.

Please contact us if you’d like to discuss your mortgage needs.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter