There are two questions we are asked on an almost daily basis. “Can I get a mortgage in my situation?” and “How much can I borrow?”. In this article, we’ll be exploring the latter.
Back in the ’80s and ’90s, there was little technological intervention in the mortgage application process. You would make an appointment with your local Building Society Manager, and they would conduct an interview with you.
More often than not, they would encourage you to bank with them until you prove yourself credit worthy. Following this period, you would then be granted the equivalent of an Agreement in Principle by the manager, including advice on how much they were prepared to lend you.
Some people see this as a highly personalised process and a common-sense approach. However, at times it led to inconsistent decision-making as the lending manual was left to be interpreted by the manager. In other words, you could have approached the same Building Society in a different town or city and obtained a different outcome.
With a view to making it fairer and cut costs, Lenders moved to automated affordability calculations. “Caps” were applied so they wouldn’t lend you more than, say, 3 or 4 times your household income.
As the 2000s progressed, Lenders were becoming increasingly generous with the amount they would lend. Some Lenders even began to offer self-certified mortgages where no background checks would be carried out.
Then, in 2008, the market crashed. The following couple of years saw the Lenders batten down the hatches and created an extremely cautious, lending environment. This made it harder for many people to get on the property ladder.
Following the recovery of the marker, the regulator launched the Mortgage Market Review (MMR) in 2014. This was a new set of guidelines for Lenders to adhere to which saw the end of old-style income multipliers which did not account for household expenditure.
Before 2014, two applicants with the same income could borrow roughly the same as each other. This was irrespective of how much they spent each month. But then we saw the introduction of new affordability models, exploring how applicants managed their money on a monthly basis.
There is still a “cap” in place with most Lenders not going past 4.75 times your annual income. However, they now consider your spending habits before deciding how much to lend. For example, if you have high childcare costs, lots of credit commitments and a student loan, they will offer you less than your friend who doesn’t have any of that expenditure.
Here at ManchesterMoneyMan.com, we are constantly surprised by the large variations from lender to lender. Some Lenders seem to penalise low earners (perhaps they are not looking for that type of applicant). Others see pension contributions as a fixed outgoing so would often lend less to individuals who are paying more into their pension.
It really is horses for courses and if you need to maximise your borrowing capacity to obtain the home you need to buy then you will need a local Mortgage Broker on your side. Someone who can research the market on your behalf to see if anyone will lend you the amount you need given your unique circumstances.
How Much Can I Borrow?
If you’re wondering “How Much Can I borrow?” and looking to take out a mortgage, you should sit down with an Advisor and work out your finances together to ensure that the repayments feel comfortable to you.