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Income and Expenditure

Affordability assessments are based upon an
assessment of your circumstances, and ensure
that we're not lending an irresponsible amount.

What is affordability?

Whether or not we can provide you with a mortgage and how much we will lend is based upon an assessment of your income & expenditure, your circumstances and the size of mortgage loan that you apply for. This is called affordability and ensures that we are not lending an irresponsible amount and are lending at an acceptable level of risk to our members.

When you apply for a mortgage, all lenders in the UK are required to:

  • Assess what level of monthly payments you can afford, after taking into account various personal and living expenses as well as your income.
  • Look ahead and ‘stress test’ your ability to repay the mortgage. This takes into account the effect of potential interest rate rises or changes to your circumstances.
  • Cap the loan-to-income ratio for the majority (85%) of their lending at no more than four and a half times your income. (For example, if your combined household income is £50,000, a mortgage provider may lend up to £225,000 to you).

This is called an affordability assessment. The purpose of the information below is to help you understand how we calculate affordability when looking at how much we can lend to you.

Our lending criteria

As well as your income and expenditure, there are a number of factors to consider when starting a mortgage application:

Find out more about how these can affect your application by viewing our Lending Criteria help page.

  • The minimum and maximum loan size allowed
  • Fees and charges that you may need to pay
  • Documents we may need to see depending on your employment status.
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How do we assess affordability?

We consider a number of factors which contribute to affordability. This informs us whether we can offer you a mortgage and if, so how much we are prepared to lend to you.

1

Income and expenditure

At the application stage we will require documentary evidence of the following:

Income

Expenditure

  • Salary
  • Regular overtime & bonuses
  • Income from Pensions or investments
  • Any benefits received (e.g child maintenance)
  • Savings & Assets held
  • Existing balances/overdrafts
  • Debt (including student loan)
  • Credit held
  • Cost of living
  • Maintenance Payments made
  • Tax savings schemes (e.g. childcare vouchers)
  • Any existing mortgage

Note: We do not include foreign income or assets when calculating how much we can lend you.

2

Credit check

A credit check is also conducted on all Approval in Principle applications.

This looks at your credit history and provides a view of the number of credits active and previously held in your name. It also looks at your record in servicing loans reliably to give a credit score.

Failed, late and missed payments on phone, utilities and credit agreements like credit cards and loans should be avoided. Over time, credit scores improve with fewer instances of late or missed payments. Certain items, such as CCJs (County Court Judgements) or a filed bankruptcy will have an impact on credit score more severely. You can find out more about credit checks by visiting Equifax.

3

Household & Personal details

We use standardised UK household expenditure figures to contribute to your affordability score.

We also factor in your age and the proposed term of the mortgage. The society offers mortgages up to the age of 75, but in an initial assessment of affordability if you are applying online (non-advised) we work around an expected retirement age of 65. If you wish to discuss this, please contact us on 0345 166 9510.

4

Further checks

Further checks are made against data supplied by other agencies and lenders. Lenders share information with each other as well as with agencies both as a safeguard, and to ensure responsible lending.

5

Unforeseeable change

We make allowances for a range of scenarios to ensure that mortgages can be paid in the event of unanticipated changes in the market or personal circumstances.

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How do I improve my affordability?

There are certain actions that you can take to improve your affordability. It's important that you note the following:

Size of loan

The property value and associated Loan-To-Value (LTV) will influence the interest rates on the products that we can offer to you. Higher LTV products come with higher rates and repayment. By reducing the size of the loan or property being considered, this can improve your affordability both from a total repayment cost and a product rate perspective.

Lifestyle

Ultimately, when reviewing your finances at full application, the monthly financial position on your statement may affect the amount the Society is willing to loan to you and your final mortgage offer. By considering this in the months immediately before application, you can help ensure that your statements show healthy cash flow position and contingency savings.

How far back do we check?

We will look at your statements and proof of income for up to 6 months prior to application. If you are in full-time employment we normally require you to have been in your post for at least 3 months.

Self employed

If you are self-employed, we may require up to 3 years of business accounts records as well as bank statements and income tax paid in order to assess affordability. Please read our self-employed notes.

Important Note

Ultimately the information you supply in your application form must be accurate. We ask you to sign an Initial Disclosure Form to verify that all the information is accurate.

You also must be prepared to provide documentary evidence to support your application where necessary. Ensuring information that you provide in your application is accurate is also important, as it affects your chances of a mortgage offer both from YBS and other lenders.

If you believe that some of the information we hold about you is incorrect, we urge you to talk with us.

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Improve your credit score

In addition to avoiding failed, late and missed payments, there are certain actions that you can take which will help ensure that your credit score is the best representative one for you. You can obtain a copy of your credit score/report with Equifax. In terms of general advice:

Do

  • Ensure that you are on the electoral register. If your name's not on there you will find it much harder to get credit.
  • Cancel unused credit cards. The score is affected by how much credit is available to you, not just how much you are using.
  • Clear any outstanding debts. If you have the opportunity to pay down outstanding debts, this will reduce the number of active credits in your name.
  • Some prepaid and credit cards have a credit-building option that can improve your credit score. This may be an additional consideration if you have no credit history as a good credit history provides a better score. Please ensure that you review any fees associated with prepaid cards. Credit builder credit cards typically have higher interest rates, so ensure you pay your monthly balances in full.

Avoid

  • Applying for credit until you've sorted out any problems on your credit file and improved your credit score.
  • Applying for lots of credit at once as this impacts your score.
  • Moving home frequently
  • Financial associations and joint credit agreements with others whose own finances may potentially lower your score.
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Other affordability considerations

Ground rent/service charge

If the property that you intend to purchase has a fixed ground rent or service/maintenance payment, we will need to know what this is on your application form.

Changing circumstances

Changing circumstances can affect your affordability in either direction. For example, an expected maternity leave might reduce affordability, whereas a child becoming eligible to receive childcare grants will improve affordability.

New build properties

If the property that you intend to purchase is a new build this will also affect the amount that the society and other lenders may be willing to lend. Find out more about loan amounts

Other lending options

Ultimately, if we cannot lend to you, or you are struggling to get a mortgage agreement due to adverse credit history, some specialist providers offer sub-prime or adverse credit mortgages. Other mortgage providers offer guarantor mortgages, which allow for higher LTV’s but require family member or other parties to act as a guarantor in the event that payment cannot be met. These are not options that the Yorkshire Building Society currently offer, and any products should be considered carefully.

Useful links

Money Advice service

How much can you afford to borrow?

Equifax

Credit reports

 

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