There are two questions we are asked almost daily. “Can I get a mortgage in my situation?” and “How much can I borrow?”. In this article, we will look at the latter.
Back in the 80s and 90s, technological intervention in the process of applying for a mortgage was small. You should make an appointment with your local construction company manager and they will interview you.
More often than not, they encourage you to bank with them until you prove yourself creditworthy. After this period you will receive the equivalent of a principal agreement from the manager, including advice on how much they are willing to lend you.
Some people see this as a very personalized process and a common sense approach. However, at times this led to inconsistent decision making as the lending guide was left to the head’s interpretation. In other words, you could apply to the same Building Society in another city or town and get a different result.
To make it fairer and cut costs, lenders have switched to automated availability calculations. “Drops” have been applied so they don’t lend you more than, say, 3-4 times your family income.
In the 2000s, lenders became increasingly generous with the amount they borrowed. Some lenders have even started offering self-certified mortgages where no verification is conducted.
Then, in 2008, the market collapsed. Over the next couple of years, lenders clogged hatches and created extremely prudent lending conditions. This made it much harder to get down the property stairs.
Nowadays the approach
Following the restoration of the token, the regulator launched the Mortgage Market Review (MMR) in 2014. It was a new set of recommendations for lenders who stopped by old income multipliers that did not take into account household expenses.
Until 2014, two applicants with the same income could borrow about the same. It was no matter how much they spent each month. But then we saw the introduction of new accessibility models, exploring how applicants manage their money on a monthly basis.
A “cap” still applies if most lenders do not exceed 4.75 annual income. However, now they take into account your spending habits before deciding how much to borrow. For example, if you have high childcare costs, a lot of loan commitments, and a student loan, they offer you less than your friend who has none of those costs.
Here at ManchesterMoneyMan.com, we are constantly amazed by the large variations from lender to lender. Some lenders seem to punish low-wage earners (perhaps they are not looking for this type of applicants). Others view pension contributions as a fixed amount, so often lend less to individuals who pay more on their pension.
These are really horses for courses, and if you need to maximize your borrowing potential to get the home you need to buy, you’ll need a local mortgage broker on your side. Someone who can research the market on your behalf to see if or not to lend you the required amount given your unique circumstances.
How much can I borrow?
If you’re wondering “How much can I borrow?” and if you want to take out a mortgage, you should sit down with a consultant and work together on your finances to ensure that the payments feel comfortable.