Loan affordability checks: what lenders look for

The new affordability reality in 2025

Affordability has overtaken income multiples as the heart of UK lending. Whether you are applying for a mortgage, car finance or a personal loan, lenders now build a rounded picture of your finances rather than leaning on a simple salary calculation. They look at what comes in, what goes out and how resilient you would be if rates rose or income fell. The objective is responsible lending that protects both borrower and bank.

In 2025, the Financial Conduct Authority has tightened rules under Consumer Duty, requiring firms to evidence that borrowing remains affordable if interest rates jumped by 3%. For applicants, that means closer scrutiny of payslips, benefits, bonuses, credit commitments and everyday spending. Many lenders use datasets such as ONS figures and Minimum Income Standards to model essential costs, then overlay your actual transactions via Open Banking to refine the numbers. The result is a decision based on real life, not estimates.

Paradoxically, criteria have eased at several high-street names. Lower stress test rates and more flexible assessments mean some borrowers could access up to £35,000 more, particularly those with stable incomes or first-time buyers supported by the government’s permanent Mortgage Guarantee Scheme, which enables 5% deposits. This is not a free pass. It is a recalibration that widens access while maintaining affordability safeguards.

Understanding APR is not just about percentages - it is about knowing what you will pay in real terms.

Expect lenders to weigh dependants, childcare, commuting and subscriptions alongside loans, cards and overdrafts. They will also ask how borrowing fits your goals. If you are remortgaging, can you still cope should rates nudge higher? If you are consolidating debt, does the term make sense or simply lower the monthly cost while increasing the total paid?

A broker can be the difference between a decline and a well-structured approval. As a UK-based retail finance broker, Kandoo helps you organise paperwork, select lenders with criteria suited to your profile and present your case clearly. The aim is straightforward - secure the right amount at a fair cost without storing up risk.

Bottom line: affordability checks are stricter, smarter and more personalised. Getting ready is not about gaming the system. It is about presenting clean data, cutting unnecessary spend and borrowing only what survives a rate-rise reality check.

Who should pay attention

If you plan to borrow in the next 12 months, affordability checks will shape your options. First-time buyers with smaller deposits will see how Consumer Duty and the Mortgage Guarantee Scheme interact to balance access and protection. Movers and remortgagers will find stress tests pivotal, especially if they are rolling off a fixed rate. Self-employed professionals and contractors should expect deeper validation of income patterns and allowable expenses, often using Open Banking to verify stability.

Applicants with dependants or higher living costs will face more granular assessment. Those with historic credit issues are not excluded, but they will need a well-evidenced story and a realistic loan size. If you want to consolidate debt, lenders will want assurance that cards are closed or limits reduced post-completion. For most borrowers, a broker-led approach reduces friction and aligns you with lenders whose affordability models match your circumstances.

The language lenders use

• Affordability assessment - a holistic review of income, regular outgoings, debts and essential living costs to judge safe borrowing levels.

• Stress rate - an interest rate used to simulate higher future repayments, often 3% above the product rate in 2025.

• Debt-to-income (DTI) - the share of monthly income going to debt repayments, used alongside affordability not as a sole rule.

• Open Banking - permission-based access to your bank transactions for accurate income and spending verification.

• Minimum Income Standard - a dataset used to estimate essential costs, alongside ONS figures for realism.

• Consumer Duty - FCA rules requiring lenders to prove good outcomes, including suitable and sustainable borrowing.

• Mortgage Guarantee Scheme - a government-backed option enabling 5% deposits for eligible buyers, lowering barriers to entry.

Your borrowing routes

1. High-street mortgages and loans - competitive rates, rigorous affordability using stress tests, with some easing that may lift borrowing power for strong profiles.

2. Specialist lenders - flexible on income types or credit blips, typically higher rates but tailored assessments that can suit self-employed or complex cases.

3. Government-supported pathways - the Mortgage Guarantee Scheme for 5% deposits and selected regional initiatives that broaden access without relaxing checks.

4. Broker-sourced panel options - curated lenders whose models align with your income, dependants and spending, improving approval odds and time to offer.

5. Debt consolidation loans - simplify multiple repayments, but total interest can rise if you extend the term, so affordability must consider lifetime cost.

What it could mean for your wallet

Who typically qualifies

Eligibility hinges on verified income, stable employment or a demonstrable trading history if self-employed, and a credit record that supports timely repayments. Lenders validate salary with payslips and contracts, or SA302s and accounts for the self-employed, then map your outgoings against national cost benchmarks. They will consider dependants, childcare, commuting and utilities, plus existing loans and cards. Under Consumer Duty, firms must evidence that borrowing is sustainable even if rates climb by 3%, so your buffer matters. Applicants using the Mortgage Guarantee Scheme must meet lender policy and affordability checks despite the 5% deposit. While some lenders have eased criteria, they still apply stress tests and may cap borrowing where spending is high or income is variable. Clean bank conduct, limited gambling, and avoiding repeated overdraft use can materially improve eligibility.

From application to approval

1. Check your credit files and correct any errors.

2. Connect Open Banking to evidence income and spending.

3. Gather payslips, accounts, ID and address documents.

4. Reduce discretionary outgoings for at least three months.

5. Use a broker to shortlist suitable lenders and products.

6. Pass the lender’s stress test at plus three percent.

7. Provide any explanations for anomalies upfront.

8. Review the offer terms and total cost carefully.

The trade-offs at a glance

What to consider before you press submit

Treat the stress rate as your true monthly cost and test your budget accordingly. If that number stretches you, reduce the loan size or extend the term with eyes open to total interest. Make sure income is stable and evidenced, particularly for bonuses, commissions or self-employed drawings. Clean up your statements for three months - cancel unused subscriptions, avoid overdrafts and pay down costly revolving debt. If consolidating, close or reduce card limits after completion to lock in the benefit. Finally, understand fees, early repayment charges and whether rate type suits your outlook on interest movements.

Alternatives if you are not ready yet

1. Wait and save - build a larger deposit or emergency fund to strengthen affordability and rates.

2. Improve credit profile - repay revolving balances, lower utilisation and correct file errors.

3. Consider a smaller property or loan - align borrowing with proven affordability today.

4. Explore guarantor or joint borrower structures - share affordability responsibly if appropriate.

Frequently asked questions

Q: How strict are 2025 affordability checks? A: Stricter under Consumer Duty. Lenders must evidence affordability at a 3% higher stress rate, using Open Banking and cost benchmarks to verify your position.

Q: Can I borrow more this year? A: Possibly. Several lenders have eased criteria, lifting borrowing power for stable profiles by up to around £35,000, though outcomes vary and stress tests still apply.

Q: Do dependants reduce what I can borrow? A: Often yes. Childcare and household costs are modelled carefully, so more dependants usually mean a lower maximum loan to keep repayments sustainable.

Q: Is Open Banking safe? A: It uses secure, permission-based access. Sharing data can feel intrusive, but it typically speeds decisions and improves fairness by using actual transactions.

Q: How do brokers help? A: Brokers match you with lenders whose models fit your profile, present your case cleanly and can suggest steps to pass affordability checks sooner.

Q: What is the 5% deposit scheme? A: The Mortgage Guarantee Scheme supports eligible buyers with 5% deposits. Standard affordability and stress testing still apply.

What to do next

Run your budget at the stress rate and sense-check the results against your priorities. Gather documents, connect Open Banking and speak to a broker who understands lender criteria shifts. If the numbers are tight, adjust the loan size or term before you apply, not after.

Important information

This guide is for general information only and is not personalised advice. Affordability outcomes vary by lender and applicant. Always review full terms and consider independent financial advice before committing to credit.