One of the most common mortgage questions is ‘How Much Can I Borrow For A Mortgage?’ Here information is provided on affordability assessments and how they are applicable post-2014.
Mortgage were manually assessed before the days of credit scoring, normally by a local building society manager. As time went on, lenders moved towards a more uniformed approach with income assessments to be able to be more consistent. Maximum lending ‘caps’ emerged from this meaning customers were restricted from borrowing more than 3 or 4 times their annual income.
These income multipliers started being more and more generous and we were starting to see many pitfalls in the 2000’s where lenders allowed customers to ‘self-certify’ incomes with no background checks such as payslips as evidence.
Following this everything started going wrong in the Mortgage Market and post-financial crisis lenders over-corrected and from such it became much more difficult to obtain a mortgage.
The Mortgage Market Review emerged after the market finally recovered from the Credit Crunch and brought in new guidelines for lenders along with new affordability calculators.
These new calculators pulled apart applicants expenses and looked deeper into spending habits and net disposable incomes. This meant Bank statements were scrutinised more closely to ensure unaffordable mortgages were not approved. For example, childcare was now taken into account.
Although lenders have made it harder from past mistakes happening, there are quite a few lenders out there. They compete on both price and lending criteria, as a result of this there are multiple variances between each lender in terms of maximum borrowing capacity. This is great for customers because if one lender doesn’t accept, another lender probably will. For example, some lenders will take into account state benefits such as tax credits for a mortgage, whereas others are more generous for self-employed mortgages.
With the Mortgage Market Review in place the old-style income multipliers were long in the past and replaced with a much more forensic view of how mortgage applicants managed their money on a monthly basis.
There is still a cap in place but spending habits are looked over. For example, if you have high childcare costs, lots of credit commitments and a student loan you will be offered less than your work-colleague who doesn’t have any of that expenditure.
It still surprises us on a daily basis on the differences lenders are willing to offer. Some seem to penalise low-earners, some take pension contributions as a fixed outgoing and so on. So it’s not always straightforward. If you need to maximise your borrowing capacity then you’ll need a Mortgage Broker on your side who is able to research the market and lenders to see who is willing to lend the amount you need.
Before you start your mortgage application you should make sure to put some time aside to sit down with your Mortgage Advisor in Sunderland and work out your financial situation to ensure that the repayments feel comfortable to you.