When assessing how much you may reasonably be able to afford to borrow, the lender will look at:
1. Your income
Your basic income and any other earnings you have. Overtime, additional jobs and even bonus payments can be taken into consideration. Lenders will also take into account income from investments, pensions, child maintenance and financial support from ex-spouses.
However, before your get creative with your calculations, remember that you will need to provide pay slips and bank statements as evidence of your income.
If you are self-employed you may need to provide business accounts, bank statements and even details of the income tax you've paid.
2. Your outgoings
These include; credit card repayments, loans, credit agreements, maintenance payments, bills such as Council Tax, water, gas, electricity, phone, and broadband. Other bills that are also taken into account include insurances, building, contents, travel, pet, life, etc.
The lender may ask for estimates of your living costs such as spending on clothes and basic recreation. Again! Try not to be creative here as lenders may even ask to see recent bank statements to back up the figures you supply.
3. Future changes that might make an impact
We all know that changes happen and the lender is no different. They will assess whether you would be able to pay your mortgage if interest rates increased, you or your partner lost their job and if your lifestyle changed for reasons such as illness, having a baby or a career break.
It's important that you also think ahead and plan how you would meet your payments if any of these things happened. For example, you may be able to protect yourself against these unexpected circumstances by building up savings. It is important to try to make sure that these savings are enough for three months of outgoings, including your soon to be new mortgage payments.