When planning for a new mortgage or considering a renewal, it’s natural to focus on your income, but lenders pay just as much attention to how you spend. In particular, recurring monthly outgoings can have a noticeable impact on what you’re able to borrow, even if they’re short term or interest-free.
How Lenders Assess Affordability
Lenders use detailed models to calculate how much disposable income you have once your regular commitments are taken into account. This includes things like loans and credit card repayments, but also less permanent or less expected items.
“The focus is on monthly obligations, not just long-term debts”
Short-Term Credit Still Counts
Buy now, pay later arrangements (BNPL) from providers like Klarna, Clearpay, or PayPal Credit, are increasingly common. While they can be useful for spreading the cost of a purchase, they appear on your credit record and are treated as monthly liabilities during a mortgage assessment.
Even if you’re only repaying a small amount over three months, several small items can add up and lenders will see that as an active monthly commitment.
Credit Cards and Loans
Likewise, existing personal loans and credit card balances are factored in based on the monthly repayment amount. In some cases, even if you clear a credit card every month, a high reported balance can lead to closer scrutiny. It’s worth being aware of how your usage appears on your credit file, particularly in the months leading up to an application. Try to keep your utilisation on any one credit card to below 50%, or better still, 25% of your credit limit.
What This Means in Practice
You don’t need to be debt-free to get a mortgage — far from it. But being conscious of your monthly commitments, especially those that aren’t always top of mind, can help avoid surprises when it comes to how much a lender is willing to offer. Lenders do not like to discover commitments that are not declared on an application, so take the time to map these out in good time beforehand.
A few considerations to keep in mind:
- Outstanding credit balances may reduce borrowing capacity
- Short-term finance is still seen as a commitment
- Timing matters; credit activity in the months before applying can affect the outcome
- Consider the use of a credit reference tool such as checkmyfile
Final Thought
Mortgage preparation doesn’t always require drastic changes. But understanding how your outgoings are viewed, even the small, temporary ones can make a meaningful difference when it comes to navigating affordability checks. It’s a subtle but important part of getting your finances in shape for a successful application.
