By Matt Fernell, Editor-in-Chief at Finance.co.uk. Last updated 1st February 2023.
Before buying a home, examine whether you can afford the cost of a mortgage. Here is a guide on how to check if lenders will accept your application and if you can be able to keep up with the repayments.
To work out the amount you can afford to spend for a home, you need to consider:
Deduct your outgoings from your income to determine how much you can pay for a mortgage every month. You can then dodge getting one with repayments that you cannot afford.
You can determine how much you can spend on a home with the use of a mortgage cost calculator. Just type in the mortgage amount, interest rate, and the mortgage term to check how much repayments will cost.
Verify if you can afford the mortgage by comparing the calculated amount to how much you can afford to pay every month.
Lenders have to carefully review your financial circumstances before they can grant you a mortgage. The rules of the Financial Conduct Authority's (FCA) means they have to ensure that you can keep up with the repayments.
To determine how much you can afford to repay, they will have to look at:
Lenders will also base their judgment on:
They also administer stress tests to examine whether you could still afford your mortgage if interest rates increased or if your circumstances changed, i.e. if you lost your job.
Sum up the following to determine your monthly income:
Make use of a calculator like Nationwide's budget planner, to sum up the amount of money that you spend every month.
Alternatively, determine your essential living costs and other expenditures yourself:
Determine the total of how much you spend in an average month on:
If your income is presently too low to secure a mortgage on the property you want, you could wait until your income becomes higher or consider the following:
You should also take into consideration income protection insurance, which could satisfy your mortgage repayments if you were unfit to work due to an illness or accident.
Avoid applying for too many mortgages if you get rejected since this can hurt your credit record and make it more difficult for you to get accepted.
Deciding on the right mortgage for your circumstances can help you get accepted and come with lower costs than unsuitable deals.
You can get mortgages designed for:
Save on bills
You can also cut down on other expenses like the following:
The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.