Stress test: how big a mortgage will I be able to get to buy a house? Why might a bank decide not to lend to me?

Before the credit crunch, working out what you could afford was fairly straightforward.

Most lenders simply multiplied your salary by around 3.5 times, checked you hadn’t been declared bankrupt recently and ticked a few boxes.

The onus is now on lenders to act responsibly by examining not only your income but your outgoings in minute detail to determine whether you can afford a loan or not.

The idea is that the process now protects consumers from being sold loans they can’t afford to repay.

The traditional advice about mortgage borrowing has always been to borrow as much as you can possibly get to secure the best possible property and maximum exposure to rising property values.

Before the financial crash, most homebuyers did just that, determining for themselves how far they could go.

These days the decision on how much of a mortgage is too much is largely taken out of your hands.

But there are plenty of mortgage calculators online that can give you a ballpark figure based on your circumstances and a sense of how much it might cost you every month.

If you know which product or lender you’d like to apply to, use their own affordability calculators – available on their websites – for a more accurate sense of how much they may be willing to lend you.

HOW WILL A MORTGAGE LENDER DECIDE HOW MUCH TO OFFER ME?

A lender will look at your current income and outgoings, particularly long term commitments to things like childcare, to ascertain what you can afford at today’s interest rate.

But they will also attempt to predict if you could cover your monthly mortgage payments if interest rates rose.

This isn’t about proving you can just about scrape together the direct debit every month. A lender wants to know that you can do it comfortably in a broad range of personal and national economic circumstances.

Alongside the usual questions about your name, date of birth, and address, expect to be asked how many children you care for and their ages, when you expect to retire, and above all how much you earn and how.

These are all questions designed to work out how your financial circumstances might change in the future.

WHAT TO WATCH OUT FOR

Be warned though, because the changes in legislation are relatively new, many processes and software banks and building societies use to calculate affordability aren’t very intuitive.

For example, if you have a two-year-old and you pay for childcare this is taken into account when working out how much disposable income you have.

But it may ignore the fact that your childcare could be free a few weeks from now when the child turns 3 and you get 30 hours a week of free childcare under the new government scheme.

You should also be prepared to answer questions about your utilities bills, insurance premiums, council tax, debts, even your housekeeping bills.

All these are considered committed expenditure – costs you have to meet every month without fail.

Any pension contributions will also be noted though this could simply be added to your expenditure as a negative or could demonstrate that you are work towards an income later in life. It all depends on who you apply to.

This is another reason why getting help from an independent, ‘whole of market’ mortgage adviser could mean the difference between securing a home loan and being turned down. They will know which lender will look most positively on your unique circumstances.