Remortgaging on a Low Income

How Lenders Assess Affordability

UK mortgage lenders are required by the FCA to carry out a thorough affordability assessment before approving any mortgage. This involves looking at your income, your committed expenditure, and your essential living costs to determine whether you can comfortably afford the repayments.

Most lenders use an income multiple to set the maximum they will lend, typically between 4 and 4.5 times your gross annual income. On a salary of £20,000, that means a maximum borrowing of around £80,000 to £90,000. Some lenders will stretch to 5 or even 5.5 times income in certain circumstances, but this is less common for lower earners.

Beyond the income multiple, lenders also stress-test your affordability at a higher interest rate to ensure you could still manage the payments if rates rise. This stress test can further reduce the amount you are able to borrow.

Types of Income Lenders Will Consider

Your base salary is the starting point, but many lenders will also consider other sources of income that can boost your borrowing capacity:

• Overtime and bonuses – some lenders will include regular overtime or guaranteed bonuses, though they may only count 50% to 75% of the amount.
• Benefits and tax credits – Working Tax Credit, Universal Credit, Child Benefit, Disability Living Allowance, and other benefits can be included by some lenders.
• Maintenance payments – court-ordered child or spousal maintenance may be accepted as income.
• Rental income – if you let out a room under the Rent a Room scheme or have other rental income, certain lenders will factor this in.

Not all lenders accept all income types, and some are more generous than others. A broker can identify which lenders will take the most favourable view of your total income.

Strategies to Improve Your Remortgage Chances

If your income is low, there are several practical steps you can take to strengthen your remortgage application. Reducing your existing debts before applying can make a significant difference, as lower committed expenditure means more disposable income for mortgage payments in the lender's affordability model.

Choosing a longer mortgage term reduces the monthly payment, which can help you pass the affordability assessment. A 30 or 35-year term will result in lower monthly costs than a 20-year term, though you will pay more interest overall.

Consider whether a joint application with a partner, spouse, or family member could work. Two incomes combined will significantly increase the amount you can borrow. Some lenders offer joint borrower sole proprietor arrangements where a family member helps with affordability but does not own the property.

What If Your Current Lender Offers a Product Transfer?

If you are already on your lender's standard variable rate or your fixed deal is ending, a product transfer with your current lender may be the simplest option. Product transfers are often subject to less rigorous affordability checks than a full remortgage because you are not borrowing any additional money.

Under FCA rules, lenders must not create unnecessary barriers for existing borrowers who want to switch to a new deal without increasing their borrowing. This means that even if your income would not qualify for a new mortgage, your current lender may still offer you a competitive rate on a product transfer.

This is sometimes referred to as the mortgage prisoner rules, which were designed to help borrowers who are stuck on expensive rates because they cannot pass modern affordability tests. If you find yourself in this situation, speak to your lender directly about their internal switching options.