How Much Can I Borrow for a Mortgage?

How Much Can I Borrow?

Through our experience as a Mortgage Broker in Durham, we find that many customers, particularly first time buyers in Durham, ask us the amount they can borrow for a mortgage. To start, we will look into the background of affordability assessments and how much they apply post-2014.

Historic Rules When Borrowing for a Mortgage

Before the days of credit scoring, mortgages were manually assessed by your local Building Society Manager. In the 1990s, lenders slowly moved towards a more uniform income assessment to provide a more consistent approach.

In order for customers to not borrow more than 3-4 times their annual income, maximum lending “caps” were introduced.

In the midst of the credit crunch in the 2000s, these income multipliers kept becoming more and more generous. Obviously, some lenders allowed their customers to “self-certify” their incomes with no background checks like payslips.

Unfortunately, this led to the financial disaster that occurred from 2008-2010 and resulted in many people struggling to get onto the property ladder. This was due to lenders creating a cautious (over-corrected) lending environment.

Nowadays Approach To How Much I Can Borrow

The Mortgage Market Review (MMR) was introduced in 2014 when the market finally recovered. This introduced a new set of guidelines for lenders to adhere to. As well as this, the old income method was stopped and replaced with new, more sophisticated affordability calculators.

These new calculators gave a more in-depth look into an applicant’s spending habits and net disposable income. This meant that the Lender could have further insight into your bank statements to ensure that unaffordable mortgages were not granted as they were before the Mortgage Market Review was introduced.

Today, there is still a “lending cap” in place at about 4.75 times your annual income but your expenditures are also analysed. For instance, lenders seem to penalise low-earners and sometimes factors like gambling can sometimes affect your chance of being lent the money. In some cases, they take pension contributions as a fixed outgoing so would usually lend, say a public sector worker with a big pension deduction less than a private sector and so on.

Mortgage Advisor in Durham

For those looking to maximise your borrowing capacity to get the home you buy, our team recommend that you get in touch with an expert Mortgage Broker in Durham, like ourselves. When you contact us, we will connect you with an expert Mortgage Advisor in Durham who will research the property market for you and look to find a lender that will lend you the amount you need lending.

Mortgage Broker in Durham

Prior to taking out a mortgage, you should seek Mortgage Advice in Durham as this can help you with arranging your finances to make sure that you are in a stable situation to keep up the repayments. Here at Durhammoneyman, we offer all our customers a free mortgage appointment which can book online or by getting in touch with our team!

Offset Mortgage Advice in Durham

Offset Mortgage in Durham

Offset mortgages used to be one of the most popular options back in the 1990s but have since declined because people aren’t as good at saving anymore. However, they would be a viable option for anyone who feels they are able to put something away each month. This also an option to bear in mind if you think you may come into money in whichever form in the near future.

In regard to how offset mortgages work, when you set one up with a lender, they also give you a Savings account as well. The Savings account which is supplied to you is linked to your mortgage. Despite the savings account not offering you any interest, the money which is withheld ‘offsets’ against your mortgage balance. For example, if you owe £100,000 on your mortgage and your savings account holds £18,000 then you only pay interest on £82,000.

Despite popular belief, offset mortgages are very flexible arrangements. You are able to deposit as much money as you wish until the mortgage is completely “offset”. Any money you put in it is instantly accessible for you to use as and when you wish.

Because saving accounts for an offset mortgage saves on the interest connected to your mortgage rather than building interest, there is no tax to pay on anything you put into it. This is why this type of mortgage appeals to Higher Rate Taxpayers.

Negative Factors of an Offset Mortgage

When looking at the negative factors of the offset mortgages. These types of mortgages do tend to have slightly higher interest rates and fees than other mortgages. This means that if you are not going to make use of the available features than you’ll be better off with a regular mortgage.  

If you think you are due for a lump sum for a particular reason in the upcoming future such as a possible inheritance, an offset saver can be a good place to deposit the money until you figure out what you plan to do with it. The same would apply for if you received annual or quarterly bonuses in your job that you do not rely on.

Consumers who prefer offset mortgages often stick with them and are less likely to go through the process of Remortgaging in Durham as opposed to other customers. They can be a little complex to understand so be sure to consider all options available when speaking to your Mortgage Advis in Durham. Your Advisor will be able to show you the ins and outs of how an offset mortgage may save you money over the full term.

The majority of people plan to overpay their mortgages when they first take them but never get around to putting this into action. This is often due to uncertainty because they are nervous about paying too much off their mortgage which could have an adverse effect on their future capital requirements.

Once more, offsets are a great solution for this type of borrower as you’re able to access the money at any time but each day the savings remain in your account – it’s working in your favour.

How to Get a Mortgage Agreement in Principle?

What is a mortgage agreement in principle?

A mortgage agreement in principle (AIP) is more or less a preliminary confirmation from a mortgage lender, that should everything proceed as planned, they would be happy to grant you a mortgage.

This not only shows you have passed a mortgage lender credit score and are creditworthy, but shows the seller of the property that you are in a better position to proceed than other buyers who perhaps don’t have an AIP, meaning the sale is likely to occur faster. This is enticing for most sellers.

Whilst having an agreement in principle is a very good indication that you will be able to obtain a mortgage, it is important to remember that this is still not guaranteed. A mortgage lender will still have to conduct further background checks at full application stage.

The Value of a Mortgage Agreement in Principle

An agreement in principle is useful for more than just showing estate agents and sellers that you are in a position to proceed. Typically, an estate agent will actually require this before you can make an offer. When it comes to making an offer, it can also help you negotiate on property price.

We would highly suggest getting an agreement in principle as soon as you possibly can in your home buying journey. As a mortgage broker in Durham, we are typically able to obtain a mortgage agreement in principle for you within 24 hours of your initial appointment.

As briefly touched upon, there are a few main reasons why it is beneficial for those who are looking for a first time buyer mortgage in Durham, to get themselves an agreement in principle. These are;

1. Negotiating Power
2. Avoiding Disappointment
3. Knowing Your Limits

Negotiating Power With a Mortgage Agreement in Principle

When you are ready to go ahead and start making offers you are ready to make an offer on a new home, you will need to show the estate agent that you do in fact have the funds to proceed with the purchase.

This will be needed in the form of bank statements and also an agreement in principle certificate that we are able to obtain for you. Once you have shown the estate agent this documentation, typically they will stop marketing the property and place either a sold or sale agreed board outside.

The prospect of going into the process of making offers when a mortgage has already been agreed in principle, is an attractive one to sellers, as it shows you have carefully thought about your plans and know exactly how you plan to make the purchase, as opposed to being spontaneous.

We sometimes find that in these cases, a seller might actually be more willing to accept an offer that is below their asking price, as you are very much ahead of other buyers who haven’t prepared themselves like you, making it a much quicker sale for them.

Avoid Disappointment With a Mortgage Agreement in Principle

Unfortunately with the home buying process, we find that some customers tend to act before they think, making offers on a property without being certain they have the means to proceed financially or if they even can get a mortgage at all.

This can of course lead to customers finding themselves quite disappointed when the mortgage application ends up failing, especially at a point where they may already have had their hearts set on a potential new family home.

The easiest way to avoid that disappointment is to simply get in touch with an expert mortgage broker in Durham ahead of time. Oftentimes there can be little things that are stopping a mortgage from going your way, that with a little time and TLC, can see a mortgage going in your favour.

Common occurrences that we hear of include issues with credit reports, perhaps even some type of phone bill dispute that can easily be fixed in short order. Another one is your electoral register information being either incorrect or non-existent, which again is easily sorted.

In some cases, a first time buyer in Durham may not even be able to get a mortgage at all, but it is definitely better to check with a mortgage advisor in Durham in order to make sure you know where you stand. They will also be able to provide you with tips to improve your credit-worthiness in the future.

Knowing Your Limits With a Mortgage Agreement in Principle

For many budding home buyers, they might think they have got it all figured out. You’ve got a good credit score, have never been declined for credit, all your electoral register information is correct, all your payments have been kept up. So what else could see you struggle?

In truth, approaching 10 different mortgage lenders could give you 10 different outcomes. Each one will have their own specific mortgage lending criteria and you might find yourself being offered a different maximum mortgage amount from each. They all calculate affordability in different ways!

For those who are self employed in Durham specifically, it can become quite confusing, as some mortgage lenders take net profit and salary, whilst others take dividends and salary, some take the latest year, some want to see an average of 2-3 years.

It’s important in any case to understand your borrowing limits, so that you can plan ahead for the future. Getting a mortgage agreement in principle can help outline to you the maximum a mortgage lender is willing to let you borrow, so that you know ahead of time.

A trusted mortgage broker in Durham will also be able to help you determine how much you could be paying back per month on your mortgage repayments, so that you are armed with all the key information you need to take on the next steps of your mortgage journey.

Book a free mortgage appointment today and we will see how we can help.