Traditionally, mortgage lenders applied an income multiple rule to decide on borrowing capability. So if you earned £25,000 per year and the lender lends times this you would be able to achieve £100,000. Nice and simple.
Nowadays however it is based on how much the lender feels you can afford to borrow, not necessarily what you think you can afford.
The amount you can afford to borrow depends on four things:
- Loan to Value (LTV) – 75% of the property’s worth or 75% LTV. Lenders will set a maximum LTV for each of their products. The higher the LTV the higher the risk to them, the higher the interest rate charged and subsequently the higher the monthly cost.
- Income – Many lenders still use income multiples to assess the maximum they will lend. They will carry out an affordability assessment to decide how much they are willing to lend in each case. All income that is declared will need to be provable through payslips, accounts, tax returns, benefit statements etc. Lenders vary on how much extra income such as bonuses and overtime you will be able to use and some will not use at all.
- Outgoings – Regular outgoings such as household bills, debt payments (loans / credit cards and insurances can all affect how much a lender will lend. Childcare costs are an important factor and most lenders will reduce borrowing capability dependent on the number of children even if there are no childcare costs.
- Credit Score / History – How you have maintained your credit profile in the past plays an important part in how much you can borrow. In the worst cases a lender may decline to lend or a low credit score will cause a lower LTV allowance and subsequent reduction in borrowing amount. Missed payments or going over credit limits can all affect credit history and result in a lower borrowing capability.
Post the mortgage regulation change in 2014 all lenders will also need to ensure in their calculations that you can still afford the monthly payments in future taking into account interest rate rises etc.
How we can help
As a broker, Mortgage Solutions works closely with a wide range of lenders both on and off the high street and has a good understanding of the complexities of the different lending criteria each mortgage provider has. Our extensive knowledge means that we know which lenders will suit your circumstances best. This has the advantage of saving you time and money, ensuring that we always go to the best lender whatever your particular situation, even with complex issues or poor credit score.
To find out how Mortgage Solutions Belfast will help you with your mortgage or financing needs give us a call on 02890 642000 or email clare.murray@mortgagesolutionsni.com and have a chat with one of the team or arrange an appointment for a free initial consultation.
