The most common question that I am asked is, “how much can I borrow on a mortgage?”
When life was a lot simpler, the answer was quite straightforward – the amount was a simple multiplier of your annual gross income. Normally around 4x, so someone with a gross income of £20,000pa could borrow £80,000.
These days, the calculation is far more complex. It looks at different types of income and also takes into consideration an individual’s expenditure. To add to the complexity, each lender has a different method of calculating. After the crash of 2007/8 the FCA decided that lenders needed to give greater focus to a borrower’s ability to meet mortgage payments. However, the FCA only issued a set of guidelines – not hard and fast rules, so lenders were free to implement them as they felt appropriate.
Therefore, different lenders look at income in different ways. For example, how they treat overtime payments, bonuses and other additions to gross pay. Also, how they deal with people who are self-employed or directors of small companies. In addition some lenders will have generous policies regarding benefit payments and others will discount these completely.
Regarding expenditure, lenders will make deductions for commitments such as loan and credit card liabilities, number of dependants, maintenance payments and other necessary payments. Other expenditure will be treated in different ways. Some lenders want full details of all expenditure and others will ask for a limited number of items, such as Council Tax, utility bills and travel costs. A few lenders will just use data from ONS regarding living costs in the area of purchase.
There are many other variations as well including those driven by information in the borrower’s credit report.
The good news is that I have access to lenders’ affordability calculators and so, based on the information that you provide regarding your income and outgoings, I am able to provide an indication of the maximum amount that would be available. My knowledge of the market will enable me to select which lenders would be best for each individual client, based on their own circumstances. For example, which lenders are most generous toward the self-employed or people receiving benefits.
I can generally obtain a figure within 24 hours of receiving all the required information.
So call me for a chat – it’s FREE