When assessing affordability for Luke and Jessica's mortgage, which statement is true?

When assessing affordability for Luke and Jessica's mortgage, which statement is true?

• A. The lender must use Luke and Jessica's actual committed expenditure, but can use reputable modelling for other expenditure.
• B. The lender must rely solely on modelling for all expenditure.
• C. The lender must ignore actual commitments.
• D. The lender may use any method as long as a credit check is passed.

Answer: (A)

Affordability checks combine what borrowers actually spend with carefully estimated discretionary spending. Lenders must account for actual committed expenditure—payments that are already due each month, like existing debts and essential outgoings—because these are real constraints on the borrower's available income. For the part of spending that can vary, lenders use reputable modelling to estimate typical discretionary costs. This approach gives a realistic picture of how much a borrower can afford to repay, including the possibility of interest-rate rises or income changes. So the true statement is that the lender must use Luke and Jessica's actual committed expenditure, but can use reputable modelling for other expenditure. Relying solely on modelling, ignoring commitments, or relying on a credit check alone would not provide a sound affordability assessment.

Affordability checks combine what borrowers actually spend with carefully estimated discretionary spending. Lenders must account for actual committed expenditure—payments that are already due each month, like existing debts and essential outgoings—because these are real constraints on the borrower's available income. For the part of spending that can vary, lenders use reputable modelling to estimate typical discretionary costs. This approach gives a realistic picture of how much a borrower can afford to repay, including the possibility of interest-rate rises or income changes.

So the true statement is that the lender must use Luke and Jessica's actual committed expenditure, but can use reputable modelling for other expenditure. Relying solely on modelling, ignoring commitments, or relying on a credit check alone would not provide a sound affordability assessment.