Are you about to apply for your first mortgage, planning ahead to making an application or perhaps considering moving to a bigger property? You may have been working out how much you can afford to borrow, how much deposit you can muster and looking around at the types of deals you might be offered. When it comes to how much mortgage you can afford to borrow there are a number of factors to consider. We take a look at these in the current mortgage climate:
HOW MUCH DEPOSIT DO YOU HAVE?
When it comes to the question of “how much can I borrow”, the deposit will be a major factor. How much you need to borrow will depend on how much deposit you are prepared, or can afford, to put down. The bigger the deposit, the more flexibility you will have. There will be some borrowers that will be looking for a 95% loan to value (LTV) with a 5% deposit and others that will have saved a greater deposit of perhaps 20%, leaving just 80% required to borrow. The more deposit you have, the greater the range of options that will be available to you, and the better interest rate you might secure. You will also have a smaller mortgage.
HOW MUCH DO YOU EARN?
There was a time when you could borrow up to six times your income or even self-certify so that you could get the mortgage you wanted (within reason). Now, you should be basing your initial calculations on 4-4.5 times your income. If you earn £50,000, as long as you don’t have loans and credit cards that need to be accounted for first, you can borrow around £200-£225k. If you are seeking a 90% loan to value mortgage, this will mean that you can purchase a property of approximately £250k.
Up until recently, a mortgage affordability test would be carried out to ascertain your outgoings and how much you could afford to repay each month, This mortgage affordability rule is to be scrapped from August 1st. That’s not to say that you will be able to borrow whatever you like, it will open up more opportunities for first time buyers though.
If you are a couple applying for a joint mortgage, a 4 times multiplier will apply to the joint income. As a couple this gives you a lot more scope for what you can borrow. For a joint income of £90,000 for example, you will be looking at being able to secure a mortgage closer to £360,000. With a 10% deposit, this means you are looking at a property price of around £400,000.
YOUR OCCUPATION
Professional mortgages are designed for qualified professionals such as doctors or dentists that are newly qualified with complicated incomes. Because of the complicated remuneration package, there is usually a higher multiplication applied to income. Finding these deals can be tricky so it is wise to enlist the help of a professional mortgage advisor who has access to the whole of market and understands the intricacies of the system.
Just because you are self-employed it doesn’t mean that you can’t secure the same mortgage deals as those who are employed. As long as you can provide proof of income and the provider is happy that you can afford the repayments, you should be able to secure the mortgage you want. You may be required to provide proof of income for 2-3 years and provide different documents to someone is who is employed.
YOUR CREDIT HISTORY
If you have an appalling credit history with defaults, CCJs and a chequered credit report, you are going to struggle to get the best rates available. It is wise to try and clean up your credit file before you make an application and to plan for this as far in advance of making your application as possible. The odd late payment now and again shouldn’t make too much of a difference but it is important to make sure that there are no nasty surprises that are going to affect either how much you can borrow, or the rate of repayment you are offered.
THE TOOLS YOU USE TO FIND THE RIGHT MORTGAGE
You can look online and make applications with banks yourself however, if the bank says no, where do you go then? What happens if you miss out on a cracking deal because you didn’t know it was available? By enlisting the help and advice of professionals, you will be able to find a much broader range of deals suitable for you and save yourself thousands in the long term. Be sure to explore all your options when applying for a mortgage.
If you are wondering ‘how much can I borrow?’ then we are happy to help. We can take a look at your current financial situation, income, credit history etc and advise you on the best deal to suit your circumstances. With access to the whole market, we can then find the best deal on your behalf and take the stress out of your mortgage application. Simply pick up the phone and give us a call – 01934 756717.