Last reviewed: June 2026
TL;DR- Mortgage affordability is assessed under FCA MCOB 11 rules - lenders must verify income, assess expenditure and stress test the mortgage at a higher rate.
- The starting point is income multiples (typically 4-4.5 times gross income) but the detailed expenditure assessment often produces a lower maximum than the multiple alone.
- Committed expenditure (existing debts, minimum credit card payments, childcare, car finance) reduces the maximum loan significantly.
- The Bank of England's FPC limits new mortgage lending above 4.5x loan-to-income to 15% of total new mortgage lending - this constrains very high-multiple lending.
The FCA Affordability Framework
Since the Mortgage Market Review of 2014, FCA rules in MCOB 11 require lenders to carry out a detailed affordability assessment before approving any regulated mortgage. The assessment must consider: verified income (not self-declared); committed expenditure; basic essential expenditure (food, utilities, transport, childcare); discretionary expenditure; and the impact of future interest rate increases (the stress test). The lender must satisfy itself that the borrower can afford the mortgage not only at the initial product rate but also at a stressed rate typically 1-3 percentage points higher.
Income Assessment
Lenders assess gross income from employment (using payslips, P60 and bank statements) or self-employment (SA302, accounts, bank statements). The starting point for the maximum loan is typically 4-4.5 times gross income, though lenders use their own income multiple thresholds. Some lenders go to 5 or 5.5 times income for specific professional groups or strong income profiles, subject to the FPC's 15% LTI flow limit above 4.5 times. Income types accepted and how they are weighted vary between lenders.
Committed Expenditure
Committed expenditure is money the borrower is contractually obligated to spend: existing mortgage or rent payments, minimum credit card payments, personal loan and car finance payments, child maintenance obligations, and other regular committed outgoings. Each of these reduces the disposable income available to service the new mortgage. A borrower with substantial existing debt commitments will have a significantly lower maximum mortgage than one with the same income and no existing commitments. Reducing unsecured debt before a mortgage application is one of the most effective ways to improve affordability.
The Stress Test
The affordability stress test assesses whether the borrower could continue to make payments if interest rates rise. Lenders typically add 1-3 percentage points to the current product rate to calculate the stressed payment. If the stressed payment exceeds what the borrower's income supports after all expenditure, the maximum loan is reduced until the stressed payment is affordable. This is why the actual maximum loan is often lower than the simple income multiple calculation suggests.
Frequently Asked Questions
How can I maximise my mortgage affordability?
Several steps can improve affordability: pay down unsecured debt to reduce committed expenditure; close unused credit card accounts (even with zero balance, the credit limit is counted as a potential commitment by some lenders); ensure the credit file is clean and accurate; consider a joint application to combine incomes; extend the mortgage term to reduce the monthly payment required by the stress test; and identify lenders with the most favourable approach to the specific income type and profile.
Does the stress test rate change with the Bank of England base rate?
The FPC introduced a stress test floor of 3 percentage points above the product rate in 2014. Following a review, this specific FPC stress test requirement was withdrawn in August 2022, as the FPC judged that the LTI flow limit (15% above 4.5x) was a more efficient safeguard. Lenders now apply their own internal stress test rates under MCOB 11 requirements. These are typically 1-3 percentage points above the product rate, and may adjust as market rates change.
Do lenders assess monthly expenditure on entertainment and subscriptions?
Yes. The FCA affordability rules require lenders to assess basic essential and discretionary expenditure. In practice, some lenders use standardised expenditure models (derived from ONS data) rather than examining every borrower's bank statements. Others do require bank statements and review actual spending patterns. The depth of expenditure assessment varies by lender - specialist and more thorough lenders may examine bank statements carefully; others apply standard modelled figures.
Can I get a larger mortgage by increasing my income?
Yes. Income is the primary driver of the maximum loan. Additional income from a pay rise, a new job, or declaring income that was previously not being counted (rental income, regular bonuses, self-employment income) can directly increase the maximum loan. The timing of income changes matters - lenders want to see evidence of sustained income rather than a very recent increase that may not continue.
