Loan to value
With the assistance of Government schemes such as Help to Buy, it is currently it is possible to borrow up to 95% of the value of a property. Unassisted, most lenders will go up to 90% LTV. Of course, the bigger your deposit, the better the rate you can expect to receive, so it’s often worth saving for as long as possible.
In the past, lenders used to work off an income multiple and it was normal to borrow 3.5 times your income. Then, in the 90s as property prices began to climb exponentially, this multiple started to get stretched and it was possible to borrow around 5.5 times your income, although 4-4.5 times was probably the average.
These days income multiples are no longer a key lending indicator. Since April 2014, new regulations require lenders to assess borrowers on their ability to repay the loan now and in the future. In some cases this has made it harder for people to get a mortgage and whilst this is frustrating, the rules are there to protect the borrower.
How do lenders assess affordability?
Assessing affordability is often referred to as stress-testing. Lenders will ask for comprehensive details of your income and expenditure. Essentially they deduct a base line of costs, typically your regular monthly bills and then apportion an amount of what’s left to the monthly mortgage payment. They will also stress test your ability to pay the mortgage if rates go up. In order to do this many apply a notional rate of 5-7%.
So if you are thinking about getting a mortgage, it’s worthwhile looking at your monthly outgoings.
You credit profile also plays an important role in getting a mortgage. Most mainstream mortgage lenders like to lend to borrowers with good, clean profiles, so it’s always worth checking yours to ensure that is as clean as possible. You can request a copy of your profile from a number of agencies including Equifax and Experian. If you spot anything that is incorrect, we suggest you approach the agency to get it rectified before you apply for a mortgage.
That’s not to say you can’t get a mortgage if you have adverse credit but it’s likely that you will be offered a higher rate. It’s always worth a conversation, so do get in touch and we’ll try to help.
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