How is Mortgage Affordability calculated?

How much a lender is prepared to lend a client for a mortgage has, over the last few years, become more complicated.

The days where lenders would simply use a multiple of a client’s salary are over and have been replaced by a Mortgage Affordability check, based on the client’s specific circumstances.

How lenders assess Mortgage Affordability

The lender now needs to know not only details of your salary but also more information on bonuses (how much and how frequently are these paid), overtime (again how much and how frequent) and how long have you been in your current job.

If you are self employed the only figures most lenders will now look at are those on your SA302 (this is in effect a statement of account from the inland Revenue) and they will normally need to see at least 2 years SA302s.

The good news is that every lender has an Affordability calculator on their website, and you can either run through this yourself, or if we are acting on your behalf we will complete this as the first step in the mortgage application process.

Many lenders now consider normal retirement age to be 70, so are happy to lend over increased terms to the older borrowers 70^th birthday. Increasing the term of a mortgage can reduce monthly payments and also increase the amount that can be lent in the first place. Future affordability consideration is important in such cases particularly regarding retirement income and plans.

A ‘real time’ example of Mortgage Lenders

You should also be aware that each lender works out the maximum loan in a slightly different way so you can get results that differ by as much as 20% from one lender to another.

Currently one of the major high street lenders are offering borrowing of up to six times income to First Time Buyers on a maximum 95% loan to value, subject to a minimum income of £30,000 for a sole applicant and £50,000 for joint applicants, and as long as the applicant is willing to borrow on a 5 year or 10-year fixed rate term (they also will not accept self-employed income for either applicant).

In a recent case, for a First Time Buyer, this lender was willing to increase the maximum loan from £247,000 to a loan of £320,000, a large increase on the size of mortgage the client can obtain. In this case it also meant that his parents were going to be taking less out of their investments to go towards the deposit.

How Mortgage Brokers can assist you

Navigating through the mortgage minefield can be complex, especially with all the factors involved in assessing mortgage affordability. Reaching out to a mortgage broker can relieve the stress and help make the process more efficient:

1. Expert Advice: Brokers understand the complexities of mortgage affordability and can provide personalised guidance to find a mortgage that fits you.
2. Lender Accessibility: Brokers have access to multiple lenders, including exclusive offers you may not be approached with. They can find you a lender suited to your unique situation.
3. Simplifying the Application Journey: Brokers manage the paperwork, correspond with the lenders and offer ongoing support.

Conclusion

Understanding the Mortgage process, particularly affordability assessments, can sometimes be confusing, but getting support from a mortgage broker can ease the process. Contact us to find out if we can guide you with financing a property.

Contact us on 0330 320 9280, email info@cravenstreetwealth.com or complete our online enquiry form for practical advice tailored to your own circumstances and needs.

 

 

YOUR MORTGAGE WILL BE SECURED ON YOUR PROPERTY. YOUR PROPERTY IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON IT.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute mortgage, investment, tax, legal or other forms of advice. References to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of publication. These may be subject to change in the future. Product rates and eligibility criteria may alter. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

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