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Affordability Calculator Guide

Understanding your borrowing capacity is crucial when applying for a mortgage or loan. Lenders typically assess your gross annual income against your monthly credit commitments, such as credit card payments, loan repayments, dependents, and other expenses.

*This guide provides general information and should not be used as a sole basis for financial decisions.

How Lenders Assess Affordability

  • Income: Your gross annual income is the starting point.
  • Credit Commitments: Includes monthly payments for loans, a percentage of credit card balances, and dependents.
  • Income Multiple: Lenders typically use a multiple of your income to determine the maximum loan amount.
  • Debt-to-Income Ratio: Generally preferred under 40% of your gross monthly income.

Need Help Understanding Your Income?

If you're unsure how your income will be assessed or need assistance in preparing your documents, our experts are here to help. Whether you're self-employed, a limited company director, a contractor, or anyone else for that matter, we can guide you through the process.

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Affordability Calculator

How Lenders Assess Self-Employed, Limited Company, and Contractor Income

  • Self-Employed Income:

    Lenders typically assess self-employed income by averaging your earnings over the last 1, 2, or 3 years. Depending on the lender and your situation, they might take the most recent year’s income or an average of the past few years. Stability and growth in income are key factors.

  • Limited Company Directors:

    For directors of limited companies, lenders often consider your salary and dividends. Some may also factor in retained profits, especially if your business shows consistent profitability. The overall health of your company, including recent financial statements, plays a crucial role in the assessment.

  • Contractors:

    Contractors are usually assessed based on their day rate. Lenders typically calculate your annual income by multiplying your day rate by the number of days you work per week (e.g., 5 days) and then by 48, 50, or 52 weeks, depending on the lender. Some lenders may be more flexible if you have a long-term contract or a history of steady work.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Some forms of Buy to Let Mortgages and Commercial Finance are not regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate commercial finance and some forms of buy to let mortgage.

This affordability calculator is a guide and may not reflect your true borrowing capacity. Please consult a financial adviser for personalised advice. Lender assessments may vary based on the provider and individual circumstances.