Affordability and Availability of Mortgage Amounts
Lenders should lend responsibly. This means that they should consider whether you can keep up the mortgage repayments now and throughout the term of the mortgage; for example after an initial discount period ends. They should base this on things like your income, expenditure and other circumstances. When you take out a mortgage, lenders look at a number of things to work out how much you can borrow. These include your earnings and outgoings, the property value and your credit history. Whatever you borrow, you need to be sure you can afford the repayments.
Lenders have in the past offered to lend an amount based on earnings. Recently it has become more common for lenders to make an affordability assessment when calculating how much they will lend you. How much you can borrow depends on how much you can afford. Lenders will check this but you can too. Mortgage lenders have in the past offered to lend a sum based on a multiple of your salary before tax. Lenders may take into account if you have other money coming in, such as bonuses, overtime or commission. However, since it is not guaranteed income lenders may, for example, only take into account half of this money. If you already have lots of expenses, such as other loan payments, they will offer you less.
Recently it has become more common for lenders to make an affordability assessment when calculating how much they are prepared to lend you. Each lender will have its own method, but generally they will all try to calculate your disposable income, taking account of your total income; any credit commitment such as loans and credit cards; and household bills and living expenses. If you have received advice from a mortgage broker, the firm advising you must recommend a mortgage that you are able to afford. Whether you receive advice or not, the lender must still lend responsibly. However, it’s always worth satisfying yourself that you can afford the monthly payments by using an online budget calculator.
It is important to give your lender as much detail as you can about your earnings and outgoings so that you’re offered a mortgage you can afford. You also need to remember to budget for the one-off costs of buying a property such as administration and solicitor fees and Stamp Duty. Your lender will arrange a valuation to check how much the property’s worth. Some lenders limit the amount they’ll lend on certain types of property, for example timber-framed. It’s worth shopping around to compare deals.
Your lender will check your credit history and ask previous lenders or landlords for references. If your record shows you’ve had difficulty with loans or rent payments in the past, it may affect how much you can borrow. Do not be put off if a lender refuses you a mortgage or offers you an expensive deal - it’s still worth shopping around.
If you can not prove your income (perhaps because you’re self-employed and don’t have accounts going back far enough), you may be able to get a ’self-certification’ mortgage. Although you may not have to offer proof of income to the lender, the lender will still want to be sure that you can afford the repayments so may ask you to provide evidence of your other outgoings.
