Before searching for a property to buy, you need to ask yourself what mortgage is affordable for you, allowing you to determine which price range to search in. There’s little point falling in love with a potentially perfect home if it is out of financial reach. Mortgage affordability checks ensure lenders know exactly what we can and can’t afford.

Borrowing large sums of money is a risk for both the borrower and the lender, so mortgage affordability checks are a crucial step that must be taken to identify the amount that can be borrowed whilst balancing risk. The affordability assessment will examine the amount you earn along with your expenditure, as well as factor in certain possibilities that could potentially affect your earnings or expenses in the future.

In this guide, we’ll answer how mortgage affordability is calculated and explain exactly what an affordability assessment is.

What is a mortgage affordability check?

Affordability checks are conducted by lenders, especially those lending large sums of money for the likes of mortgages, as well as homeowner loans for other expensive outlays. We will go into more detail about how mortgage affordability is calculated in the next section, but in general, the lender will conduct a check by comparing your incoming finances with your outgoings.

Lenders are also aware that circumstances can change, sometimes drastically, and will take this into consideration too via a process called stress-testing. Stress-test examples include an unexpected reduction in income, a rise in interest rates, or significant illness. Couples applying together will also have their finances stress-tested to see if starting or expanding a family with children will affect their ability to afford repayments.

Affordability check vs. Agreement in Principle

It is important to note that an affordability check differs significantly from an Agreement in Principle. The latter is a basic process where you find out a theoretical amount that you can borrow, without the lender conducting a full credit check. There are similar calculations involved, such as the lender comparing your earnings with your expenses, but there is no stress-testing and thus there is no commitment or guarantee for the loan from either party.

How is mortgage affordability calculated?

Mortgage affordability checks involve the same calculations regardless of whether it is a sole or joint application. First, the lender compares your sole or combined incomings with your outgoings, then applies the relevant stress-testing to see if you will be able to continue repaying the loan should your circumstances change.

So, what counts as an incoming and an outgoing?

What are incomings?

The primary source of money coming in is your income, as in how much you earn through your job or business. The lender will need to know your salary and monthly wage if you’re employed, plus any additional earnings from any other work. Other types of earned income include any tips and commissions you make on top of your regular wages and any money earned through selling goods or providing services at a profit. You should also include any extras received via prizes, awards, gifts, allowances, or inheritance.

There are also two other types of income, namely passive and portfolio incomes. Passive income includes any money received from rental properties you own and any royalties or limited partnerships. Portfolio income consists of all interest, dividends, and capital gains you receive from any investments.

What are outgoings?

Your outgoings include everything you regularly spend your income on. This includes all bills and other regular payments, which count as ‘committed expenditure’.

Bills include payments for all utilities such as water and electricity, as well as mobile phone and internet services. You will also need to include any other regular loan or credit card payments, rental fees, plus tuition fees, insurance payments, and even regular prescriptions you pay each month.

What documents do I need for an affordability test?

Lenders conducting mortgage affordability checks will require proof of your incomings and outgoings. If you are employed, then you will have to provide your last three payslips as well as your most recent P60. Copies of your last three bank statements will also be required, as well as documented proof of any other income such as passive or portfolio.

If you’re self-employed, you’ll need to provide three years of audited accounts which have been signed off by a qualified accountant. You will also need to provide evidence of your tax contributions for at least two years, which can be provided via the SA302 tax summary you receive after completing your self-assessment tax return. Additional requirements for the self-employed include tax year overviews, plus copies of your bank statements for the last three months from both your personal and business bank accounts.

For outgoings, you will need to provide documentation proving how much you spend on utility bills, mobile phone, and internet services, as well as any insurance policies you have. Other documents required include any credit cards or store cards you possess, as well as the likes of car finance agreements and any other personal loans.

If you have children, then proof of childcare costs and school fees must be provided, as well as any maintenance payments you make to an ex-partner.

Can I boost my chances of passing the assessment?

The best way to boost your chances of passing the mortgage affordability check is by organising all the necessary documentation long before the assessment. This should take place at least six months ahead of the assessment date, so you have time to arrange for the documents while getting your finances in order.


You can gauge your chances of passing a mortgage affordability check by simply comparing your incomings with your outgoings, but you should also be applying some stress-testing to your finances to determine your ability to maintain repayments should your circumstances change for the worse.

If you are looking for a homeowner loan, speak to one of Pepper Money’s broker partners today.