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The two most common questions First Time Buyers and Home Movers ask us in Manchester daily are, “Can I get a mortgage in my situation?” and “How much can I borrow?”. In this article, we explain the latter, which has changed quite a lot in the past decade.
Back in the ’80s and ’90s, most mortgage applications got manually underwritten. That is to say. There was lots of “human intervention” in the process of approving mortgage applications. You’d make an appointment with your Building Society Manager, and he or she would interview you.
They would encourage you to save with them for a while until you prove yourself credit-worthy. The manager would then grant you the equivalent of an Agreement in Principle. In any case, this would then get followed by advice on how much they were getting prepared to lend.
However, this sounds very much like a highly personalised process with a common-sense approach. In any case, it could lead to inconsistent decision-making. The manager has the discretion to interpret the lending manual. In other words, I suppose it would be possible to approach the same Building Society in a different town or city. You could obtain a different outcome.
To eradicate the above and more importantly, cut costs, Lenders moved to automated affordability calculations. “Caps” were applied so they would lend you more than, say, 3 or 4 times your household income.
As the 2000s progressed, Lenders were becoming more and more generous in how much they would lend. Some Lenders would offer self-certified mortgages. In any case, this was where no background checks would get carried out as regards how much an applicant was earning!
The market crashed, and to all intents and purposes, 2008-2010 were challenging years if you were trying to get on the property ladder. The Lenders battened down the hatches and created a very cautious (over-corrected) lending environment.
The market recovered, and in 2014 the regulator launched the Mortgage Market Review (MMR). In any case, this was a new set of guidelines for Lenders to adhere. Gone were the old-style income multipliers, which took little account of household expenditure. Before 2014, two applicants earning the same could borrow roughly the same as each other.
However, this was irrespective of how much they spent each month. Then came new affordability models. These took a much more forensic view of how mortgage applicants managed their money monthly.
On top of the cap in place, we have seen that most Lenders will not go past 4.75 times your annual income, and like to analyse your spending habits. They do this in the case; you have high childcare costs, lots of credit commitments, and a student loan, they will offer you less than your work-colleague who doesn’t have any of that expenditure.
We are always surprised by the large variances lender to lender in how much (or little) they will lend. Some Lenders seem to penalise low-earners (perhaps they are not looking for that type of applicant). Some take pension contributions as a fixed outgoing so would often lend, say a public sector worker with a significant pension deduction less than a private sector.
It is horses for courses, and if you need to maximise your borrowing capacity to obtain the home you need to buy, then you’ll need a Mortgage Broker in Manchester. Having someone like us on your side who can research the market on your behalf to see if anyone will lend you the amount you need.
If you’re wondering “How Much Can I borrow?” and looking to take out a mortgage, you should speak to one of our Mortgage Advisors in Manchester today, so we can work out your finances together to ensure that the repayments feel comfortable to you.