Mortgage criteria: How much can I borrow?

The first question our mortgage advisers are usually asked is “How much can I borrow”?

In the past, mortgage lenders based the amount you could borrow mainly on a multiple of your income. This was often referred to as the loan-to-income ratio. Mortgage criteria have now changed.

This worked by looking at your salary and then multiplying it by three, four or even five times to give you the amount you could borrow. Not a very scientific way of lending large sums of money.

This all came to an end in 2014 with the introduction by the Financial Conduct Authority (FCA) of the Mortgage Market Review. The FCA now requires the lenders to look at affordability as well. Can you afford the monthly mortgage repayments?

What is the affordability assessment?

Lenders must now assess what level of monthly payments you can afford. They will consider your personal and living expenses, not just your income. They will assess what level of monthly payments you can afford, after considering your personal and living expenses as well as your income.

Additionally, mortgage lenders are required to “stress test” your ability to repay the mortgage. This involves considering the effect of possible interest rate rises and changes to your lifestyle, such as-

Losing your job
Starting a family
Taking a career break
Retirement
You cannot work due to illness

If the lender feels that you won’t be able to afford your mortgage payments in these circumstances, they will limit the amount you can borrow.

So, before applying for a mortgage, you now need to think about more than just whether you can afford the monthly repayments. Mortgage lenders will look at your income and outgoings to see if you can keep up with the repayments if your circumstances change or interest rates change.

What will the mortgage lender consider?

When working out how much you can afford to borrow, the lender will look at-

Income

Your basic salary together with overtime, commission or bonus payments or a second job and any freelance work.
Regular pension or investment income
Child maintenance and financial support from ex-spouses

In all cases, you will need to provide pay slips and bank statements as evidence.

If you are self-employed you will need the following-

Bank statements
Business accounts
Income tax you have paid

Outgoings

This may include-

Utility bills such as water, gas, electricity, phone, broadband
Credit card and Loan repayments
Maintenance payments
Insurance – building, contents, travel, pet, life, etc
Some lenders ask for estimates of your living costs such as spending on clothes, basic recreation and childcare.

The lender will check the payment against your recent bank statements and figures from the Office of National Statistics.

Remember to check your credit report

It’s a good idea to check your credit report before applying for a mortgage. You can do this for free through our website with Experian.

Checking your report now will give you time to correct any mistakes. Adverse entries such as County Court Judgements (CCJ’s) or missed loan or credit card payments will not be looked upon favourably by the mortgage lender.

How Anstee & Co can help you met the mortgage criteria.

Our mortgage advisers will help you to understand how you will be viewed by a mortgage lender. Their experience of the lender’s, mortgage criteria will save you time and money. Your mortgage adviser will work with you to provide the most suitable mortgage.

Why not arrange a meeting today. The meeting can be made at a time that is convenient for you. This may be at a weekend or early evening. We have an office located at-