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Affordability checks can cause a lot of concern for people seeking mortgage lending - but your income isn't the only crucial factor.
Let's look at how a lender will assess a mortgage application and how to improve your chances of approval.
For more help finding the best lending products for you, give us a call on 0330 304 3040, or email the team at info@revolutionbrokers.co.uk.
UK lenders need to make sure you can keep up with your mortgage repayments and afford the mortgage, you are applying for.
That includes looking at what you earn and spend and assessing factors such as your credit history and how much deposit you have available.
Lenders each have their own policies and lending limits, but generally, the maximum you can borrow is based on a multiple of your annual income.
The typical maximum is around three or four times your salary, although you can borrow more and as much as six times your income in some circumstances.
Below you'll see a table showing different lender calculation bases, and what that means your mortgage maximum might be depending on which provider you apply to:
|
Salary |
Lender A - 3 x income |
Lender B - 4 x income |
Lender C - 5 x income |
Lender D - 6 x income |
|
£35,000 |
£105,000 |
£140,000 |
£175,000 |
£210,000 |
|
£40,000 |
£120,000 |
£160,000 |
£200,000 |
£240,000 |
|
£45,000 |
£135,000 |
£180,000 |
£225,000 |
£270,000 |
|
£50,000 |
£150,000 |
£200,000 |
£250,000 |
£300,000 |
|
£55,000 |
£165,000 |
£220,000 |
£275,000 |
£330,000 |
|
£60,000 |
£180,000 |
£240,000 |
£300,000 |
£360,000 |
|
£65,000 |
£195,000 |
£260,000 |
£325,000 |
£390,000 |
|
£70,000 |
£210,000 |
£280,000 |
£350,000 |
£420,000 |
The same scenarios apply for joint applicants - the lender will combine your income, and use that figure to calculate what they can lend.
Income is one factor, but lenders will also look at the below:
Most lenders use the same affordability assessments, whether you are a first-time buyer or taking out a mortgage to buy a new home.
The cap is usually based on three or four times your salary, although it can be as high as five or six times in the right circumstances.
There are also several different schemes to make it easier for first-time buyers to get onto the property ladders, such as Help to Buy.
Help to Buy offers an equity loan at zero-interest for the first five years, where you can borrow up to 20% of the value of a new-build property, using a 5% deposit to create a 25% total down payment.
That means needing a 75% mortgage, for a new-build up to £600,000 in value. There aren't any fees to pay on the equity loan, although if you don't repay it in the first five years - or refinance - then interest starts at 1.75% in year six and increases each year after that.
Your Help to Buy equity loan is a stake in the property, so if the home has increased in value by the time you pay it back, the amount you need to buy out the share will also increase. For example, if you buy a property for £100,000 and have a £20,000 loan from the government, then sell it for £120,000, you'll need to repay £24,000 in total since that is how much the 20% stake is now worth.
BTL mortgages work slightly differently to residential mortgages. You'll usually need a higher deposit of 20% to 40%.
Most buy to let mortgages are interest-only, so you pay only the interest element each month without repaying any capital. Therefore, you need to have a repayment vehicle in place to show how you're going to pay back the original loan.
Lenders will also need to know the anticipated rental income and how sufficiently that covers the mortgage interest payment. A stress test also applies, where the lender will need to check that if the interest rates rise or temporarily lose a tenant, you will still make the payments.
Second-home affordability assessments work like a residential mortgage, with things like your salary, expenses and credit file all being important.
Checks tend to be more rigorous for a second home since the lender needs to be sure that you can repay the loan even with a primary mortgage already in place.
In manycases, the Loan to Value on a second home is capped at 75% or 85%, so you'll need a deposit of at least 15% up to 25% and above.
A guarantor mortgage is an excellent way to get a mortgage if you were otherwise unable to meet the affordability assessments. In essence, you can buy a property with zero deposit, with a family member acting as your guarantor.
This security means that a lender has a back-up plan in place if you don't make a repayment - and in some cases, you can borrow a higher multiple of your salary with a guarantor.
While property prices are higher in London, the affordability checks will be the same as for anywhere else.
The only way that location has a significant impact is in the buy to let market. Lenders will check the anticipated rental income for similar properties in that area, and therefore buy to let loans may be easier to secure.
If you're concerned about being eligible for a mortgage or need help finding lending having been turned down by a mainstream bank, we are here to help.
The business loan broker team is an independent, expert broker, available on 0330 304 3040, or via email at info@revolutionbrokers.co.uk.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.
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Ask us any question you might have, and one of our skilled consultants will come back to you as quickly as possible.
