A common question from First Time Buyers in Durham that we get asked all of the time is “How Much Can I Borrow for a Mortgage”. Let’s have a look at the background of affordability assessments and how they apply post-2014.
Way before credit scoring, mortgages were manually assessed by your local Building Society Manager. Lenders then decided to move towards more uniform income assessments to provide a consistent approach in the 1990s.
Maximum lending “caps” were introduced so that customers couldn’t borrow more than 3-4 times their annual income.
During the time of the credit crunch in the 2000s, these income multipliers kept becoming more and more generous. Of course, some Lenders allowed their customers to “self-certify” their incomes with no background checks such as payslips.
This went horribly wrong and it was a struggle to get onto the property ladder from 2008-2010. This is because Lenders battened down the hatches and created a cautious (over-corrected) lending environment.
In 2014, the Mortgage Market Review (MMR) was brought in once the market had finally recovered. This brought a new set of guidelines for Lenders to adhere to. The old income multiplier method was stopped and replaced with new, more sophisticated affordability calculators.
These new calculators gave a closer look into an applicant’s spending habits and net disposable income. This meant that the Lender could have an in-depth look into your bank statements to ensure that unaffordable mortgages were not granted as they were before the Mortgage Market Review was introduced.
To this day, there is still a “lending cap” in place at about 4.75 times your annual income but your expenditures are also analysed. For example, Lenders seem to penalise low-earners and sometimes things like gambling can sometimes affect your chances of being lent the money. Some take pension contributions as a fixed outgoing so would often lend, say a public sector worker with a big pension deduction less than a private sector and so on.
If you are looking to maximise your borrowing capacity to obtain the home you want to buy then we would recommend that you speak to an Expert Mortgage Broker in Durham, like us. A Mortgage Advisor in Durham will research the property market on your behalf and try to find a lender that will lend you the amount you need lending.
Before you take out a mortgage you should sit down and have a chat with an expert Mortgage Advisor in Durham and work out your finances together to ensure that the repayments feel comfortable to you. Which is what you want.