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Lenders assess affordability by looking at your income, your regular committed outgoings and how comfortably you would keep paying the mortgage if interest rates rose. They then apply their own criteria and scoring on top, which is where a credit history issue such as a CCJ, default or history of missed payments can narrow, rather than automatically remove, your options.
What counts as income?
Lenders usually start with your basic salary or, for the self-employed, an average of recent years’ profits or dividends. Regular, reliable extra income such as guaranteed overtime, a second job or child maintenance can often be included, though many lenders only count a proportion of variable income and some ask for two years’ history before they will rely on it.
Self-employed applicants commonly need two years’ accounts or SA302 tax calculations with tax year overviews, though some lenders consider one year. Company directors may be assessed on salary plus dividends, and some lenders look at retained profits within the business too. Our guide for self-employed applicants covers this in more depth.
What counts as a committed outgoing?
Outgoings include your existing debts and regular commitments, not just discretionary spending. A lender typically adds up:
- Credit card, loan and car finance repayments
- Other mortgages or secured borrowing
- Child maintenance or spousal maintenance payments
- Student loan repayments, where these are taken into account
- A living cost allowance based on your household size and location
Where a remortgage is being used to consolidate other debts, the lender will also look at what the new, single monthly payment will be once those debts are cleared. That can improve monthly affordability, but it comes with a real trade off: unsecured debts become secured against your home, and a longer term can mean paying more overall. Our guide on debt consolidation remortgages sets this out.
How does a stress test fit into affordability?
Alongside your current outgoings, lenders check whether you could still afford the mortgage if the interest rate were higher than the rate you are actually being offered. This is known as stress testing, and it protects both you and the lender against a future rate rise. Our guide on what a mortgage stress test is explains how it works and why it can reduce how much some people can borrow.
How does bad credit affect the assessment?
Affordability and credit history are usually assessed as separate steps, though they interact in practice. A lender may run its own credit score against your file in addition to the affordability sums, and a past CCJ, default, mortgage arrears or an IVA can affect which lenders are prepared to offer a mortgage at all, even where the affordability numbers work.
| Assessment area | What it covers | Where bad credit typically has the most effect |
|---|---|---|
| Income assessment | Salary, self-employed profit, other regular income | Rarely affected directly by credit history |
| Outgoings assessment | Existing debts, commitments, living costs | An unpaid default or CCJ still being repaid adds to outgoings |
| Stress test | Ability to cope with a higher hypothetical rate | Can reduce the maximum loan size for everyone, regardless of credit history |
| Lender’s own credit scoring | The lender’s internal criteria and risk appetite | This is usually where adverse credit narrows the choice of lender |
What this means if you are remortgaging with adverse credit
If you have a CCJ, defaults, missed payments or a past insolvency, the affordability sums themselves work in broadly the same way as for anyone else: income in, outgoings out, then a stress test. What typically changes is which lenders you can approach and what they want to see alongside the numbers, such as an explanation of what happened and evidence that things have improved. Specialist and adverse credit lenders build their criteria around this, which is why an adviser who knows that part of the market can be useful. Being open about your situation and having your documents ready, including bank statements and proof of income, tends to make the process smoother whichever lender you approach.
A worked illustrative example
These figures are for illustration only and are not a quote of any real lender’s criteria. Suppose a homeowner earns £2,400 a month after tax and has a car finance payment of £180, a credit card minimum payment of £60, and £150 a month still going towards a satisfied default from two years ago. Their committed outgoings before general living costs come to £390 a month. A lender then adds a living cost allowance, say £700 in this illustration, bringing total outgoings to roughly £1,090. That leaves about £1,310 a month before the mortgage payment itself, which the lender checks against the stressed monthly payment on the amount being borrowed. If the stressed payment sits below that figure, the sums are more likely to work; if it sits above, the lender may offer less or ask about reducing other borrowing first. Every lender sets its own allowances and stress margin, so treat this only as a rough illustration of the shape of the calculation.
Common mistakes that can hold up an affordability assessment
- Assuming all income counts in full. Bonus, overtime and freelance income are often only partly counted, or need a track record first. Ask before relying on the full figure being included.
- Not accounting for a debt still being repaid. A default or CCJ that is satisfied but still being paid off through instalments still counts as a committed outgoing until it is fully cleared.
- Applying to several lenders at once without advice. Multiple hard searches close together, on top of an existing credit issue, can make an already narrow field of lenders more cautious. Our guide on whether you need a broker for a bad credit remortgage explains when specialist help tends to be worth it.
- Leaving gaps in paperwork. Missing bank statements, an incomplete set of self-employed accounts, or payslips that do not match your declared income can stall an assessment even when the underlying affordability is fine.
- Underestimating small recurring commitments. People often forget subscriptions, a phone or utility default from a missed payments history, or arrears being repaid on another account. Add these up before you apply so there are no surprises during the assessment.
Getting your own numbers in order first
Before you apply, it is worth working out roughly what you spend each month against what you earn, and checking your free statutory credit report from Experian, Equifax and TransUnion so there are no surprises. If your outgoings feel unmanageable rather than just something a lender needs to see, free and impartial help is available from MoneyHelper, StepChange and National Debtline before you take on any new borrowing.
Frequently asked questions
Does bad credit automatically fail an affordability assessment?
Do lenders check bank statements as part of affordability?
Many do, particularly for larger loans or when self-employed income needs verifying. They are checking that income and outgoings match what you have declared, not judging every transaction. Regular gambling or frequent short-term credit use may prompt questions.
Can overtime or bonus income be included?
Often, yes, though lenders commonly only count a percentage of variable income, and some ask for a track record over one or two years. Policies vary, so ask an adviser or lender directly rather than assuming a figure will count in full.
Does having dependants reduce how much I can borrow?
It can. Lenders build a living cost allowance into their affordability model, and this generally increases with the number of dependants, alongside your other committed outgoings.