Mortgage affordability and the lender stress test
In short. Under FCA Responsible Lending rules (MCOB 11.6), every UK mortgage lender must verify income and expenditure and check the loan would remain affordable if interest rates rose. Most lenders 'stress test' affordability at the higher of their reversion rate or a rate set in their policy. Headline 'income multiples' (e.g. 4.5× salary) are a guide, not the rule.
The PRA scrapped its prescribed affordability stress test in August 2022, but the FCA's wider affordability and Loan-to-Income (LTI) flow-limit rules remain. Lenders therefore still stress-test, just under their own policy rather than to a Bank of England template.
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What lenders look at
- Income — payslips, tax returns and bank statements, with bonus and commission discounted to a 'sustainable' figure
- Committed expenditure — credit cards, loans, car finance, student loans (Plan-specific), childcare, child maintenance
- Basic living costs — typically modelled from the ONS household-expenditure data
- Stress-rate test — could the borrower still afford repayments if the rate rose to the lender's stressed level (commonly the reversion rate, often Bank Rate + 1% or a fixed floor)?
Loan-to-Income (LTI) limits
The Bank of England's Financial Policy Committee allows lenders to write no more than 15% of their new mortgages at loan-to-income ratios of 4.5 or above. This is a flow limit on the lender's book, not an outright ban on higher multiples, so a small share of lending above 4.5× LTI is still possible — typically for higher earners.
First-time buyer schemes that affect affordability
- Mortgage Guarantee Scheme — supports 95% LTV lending; extended to June 2026 then replaced by a permanent successor
- Shared Ownership — purchase 25–75% of a home; rent paid on the rest
- First Homes — discounted homes (30–50% off) sold to local first-time buyers under £80k income (£90k London)
- Lifetime ISA — 25% government bonus on up to £4,000/year towards a first home under £450,000
FAQ
- What income multiple will lenders offer me?
- Most lenders cap mainstream affordability at 4–4.5× annual income, with some offering 5× or more for higher earners or specific professions (doctors, dentists, lawyers). The actual loan offered comes from the full affordability calculation, not the multiple.
- Will the lender include my partner's income?
- Yes if you apply jointly. Joint applications generally use both incomes for the affordability calculation, and both names go on the legal title and the mortgage.
- Does the stress test still apply now that the Bank of England removed it?
- Yes — the FCA's MCOB 11.6 affordability rules are unchanged. The Bank of England only withdrew its specific affordability stress-rate prescription in August 2022; lenders set their own stress floor in policy.