Understanding mortgage affordability
Our mortgage affordability decisions are based upon an assessment of your circumstances, and help us to ensure that we're not lending an irresponsible amount.
How much mortgage can I get?
Our mortgage lending decisions and how much mortgage you can get (the amount) is based upon an assessment of your income & expenditure (or outgoings), 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 on the basis that we can be reasonably sure that our customers are able to repay their mortgage.
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 any 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 and impacts how much you can borrow for a mortgage. 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 you should consider when starting a mortgage application. These are known as ‘lending criteria’ and you can find out more about our specific criteria by viewing our lending criteria page. Find out about:
Find out more about how these can affect your application by viewing our Lending Criteria help page.
- The minimum and maximum loan size allowed
- The documents you may need to provide with your mortgage application
- Fees and charges that you may need to pay
Our lending criteria
How do we assess affordability?
We consider a number of factors which contribute to affordability and ultimately what mortgage you can afford. This informs us whether we can offer you a mortgage and if, so how much we are prepared to lend to you.
Evidence of your income and expenditure
When you make your application, we’ll need to see documentary evidence of the following:
- 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
- Living costs
- Maintenance Payments made
- Tax savings schemes (e.g. childcare vouchers)
- Any existing mortgage
Please note, we don’t include foreign income or assets when calculating how much we can lend to you.
Currently, we don’t accept furlough income for mortgage applications.
Applicants who were on Furlough must be back at work on their full salary before we can consider their income for a mortgage application.
For joint mortgage applications, where one applicant was on Furlough we will assess the affordability of the mortgage using only the salary of the applicant who has not been on Furlough.
A credit check is conducted on all Full mortgage applications.
The credit check looks at your credit history and provides a view of your active credit accounts and any previously held in your name. It also includes information on how reliably you have kept up repayments on any of your credit accounts.
Failed, late or missed repayments on phone, utilities and credit agreements like credit cards or loans should be avoided. Over time, credit scores improve with fewer instances of late or missed payments. Certain items, such as County Court Judgements (CCJ’s) or a filed bankruptcy will have a severe impact on your credit score. You can find out more about credit checks by visiting Equifax.
Household and personal details
We use standardised UK household expenditure figures when assessing your mortgage affordability.
We also factor in your age and the proposed term of the mortgage. We offer mortgages up to the age of 80 on a repayment mortgage and 70 on interest only, although if you are applying online (a non-advised application) we work on an assumed retirement age of 70. If your mortgage term is likely to extend past your retirement age you will need to speak to us about your application. Please contact us on 0345 166 9510.
Further checks are made against data supplied by other agencies and lenders. Information is shared between these parties both as a safeguard and to ensure we lend responsibly.
We make allowances for a range of scenarios to ensure that your mortgage can be repaid in the event of unanticipated changes in the market or any change in personal circumstances.
Improving your affordability
There are certain actions that you can take to improve what mortgage you can afford:
The size of your loan
The mortgage deals available to you are determined by your Loan to Value (LTV), which is the proportion of the amount you are borrowing to the value of the property. Mortgage deals with a higher LTV usually come with higher interest rates and repayment. If you are able to reduce the amount you are borrowing you can improve your affordability both from a total repayment cost and an interest rate perspective.
We review your finances and your monthly financial position when assessing your mortgage application, as this may affect the amount we are willing to loan to you as per your mortgage offer. By considering this in the months immediately before application, you can help ensure that you have healthy bank statements showing positive cash management as well as some rainy-day savings.
How far back do we check?
We will look at your bank 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.
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 guidance for self-employed applicants on the Lending criteria page.
The information you supply in your application form must be accurate and we ask you to sign an Initial Disclosure Form to verify that this is the case.
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 contact us.
How to 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 as accurate as possible. You can obtain a copy of your credit score/report with Equifax.
Some general bits of advice:
- Ensure that you are on the electoral register for your current address. If you are not listed you may find it difficult to get credit.
- Cancel unused credit cards - your credit score is affected by how much credit is available to you and not just how much credit you are using.
- Clear any outstanding debts. If you have the opportunity and the means to pay down outstanding debts, this will reduce the number of active credit agreements in your name.
- Look into prepaid and credit cards as a method for improving your credit score. Some have a credit-rebuilding option which is worth considering if you have little or no credit history as a good credit history usually means a good score. Please ensure you review the fees associated with prepaid cards. You should be aware that these cards sometimes have a higher interest rate so you need to make sure you pay your balance off in full each month.
- Applying for further credit until you have resolved any issues with your credit file and have improved your score.
- Applying for lots of credit at once.
- Moving home frequently.
- Having a shared bank account, credit card, mortgage or other financial product with another person whose finances may affect your score. Credit reference agencies will often search both the file of the applicant and the person they are linked to when carrying out a credit search.
Other affordability considerations
Ground rent & service charges
If the property that you intend to purchase has a ground rent or service charge, we will need to know what this is on your application form.
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 your new property is a new build this will also affect the amount that the Society and other providers may be willing to lend. See our lending criteria page for more information on our minimum and maximum borrowing amounts for new build properties.
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. We do not currently offer any mortgage deals of this type, and any such mortgages offered by other providers should be considered carefully.