Mortgages are becoming more and more expensive as interest rates continue to rise.
The Bank of England has steadily increased its base rate from 0.1% in December to its current level of 2.25% - the highest in 14 years.
The base rate is important if you have a mortgage, as it could mean your monthly payments will rise if rates go up.
If you have a tracker mortgage, your monthly repayments will move in line with the base rate.
Most standard variable rate (SVR) deals will also become more expensive, although it is down to your lender to decide whether they put up your rates.
If you have a fixed-rate mortgage, then you’ll be protected from any rises until your current deal comes to an end.
This means if you’re due to remortgage soon, you will likely face paying thousands of pounds more due to how much rates have risen.
The rate on a typical two-year fixed rate mortgage breached 6% for the first time in 14 years last week, according to Moneyfacts.
If you’re thinking about buying your first-home or remortgaging, we explain the affordability rules you’ll have to meet.
Mortgage affordability rules explained
As part of your mortgage application, lenders must check if you can afford to repay your mortgage every month.
This is known as the affordability test and is a requirement of the Financial Conduct Authority (FCA).
As well as checking if you can afford your mortgage now, lenders will also look at whether you can still afford your repayments if the interest rate rises.
Under FCA rules, lenders have to stress test a mortgage at 1 percentage point above the SVR that you would move on to after your current deal expires.
Lenders will also access if you can still keep up your repayments if there is a change to your lifestyle, such as redundancy or taking a career break.
If the bank doesn't think you will be able to keep up with your repayments, they might limit how much you can borrow.
As a mortgage borrower, you are normally capped at between 4 times and 5 times your salary.
When working out how much you can afford to borrow, MoneyHelper - a financial website approved by the Government - says the lender will look at:
- Your basic income
- Income from your pension or investments
- Income in the form of child maintenance and financial support from ex-spouses
- Any other earnings you have – for example, from overtime, commission or bonus payments or a second job or freelance work
They will then look at your outgoings, which could include:
- Credit card repayments
- Maintenance payments
- Insurance payments
- Any other loans or credit agreements
- Bills such as water, gas, electricity, phone, broadband
The lender will then take into account how future changes might impact your payments - this would be things like if you lost your job, or interest rates went up.
When applying for a mortgage, you'll have to provide figures for your salary, debts and all your other regular payments -so be prepared to have all this to hand.
If you fail an affordability test, the lender should tell you why. For example, they may tell you to reduce your debts or to cut back on your spending.
Debts would usually be considered large if the monthly repayments are more than 50% of your monthly income.
