Mortgages How Lenders Work Out Affordability

Mortgages How Lenders Work Out Affordability



Mortgages - How Lenders Work Out Affordability
If you​ are thinking about purchasing a​ property it​ is​ first important to​ know how much you​ can afford to​ borrow .​
Mortgage Lenders traditionally used income multiples to​ work out this amount.
If an​ applicant was earning 30,​000 a​ year the​ lender would calculate that they could comfortably afford to​ borrow 3.5 x their income which is​ 105,​000 .​
If approached with a​ joint application,​ lenders would add the​ two incomes together say 30,​000 and 16,​000; this would make their total income 46,​000 .​
To work out how much the​ couple could borrow they would then multiply this figure by 2.5,​ this would make a​ total of​ 115,​000.
However these affordability practices have now become outdated with house price inflation and low interest rates,​ these factors have made the​ cost of​ borrowing a​ mortgage cheaper.
Why the​ Practice Has Changed?
In the​ last few years mortgage lenders have started to​ offer larger amounts,​ they have increased the​ income multiples to​ for example 4 or​ 5 times salary .​
Since the​ property house price boom,​ this is​ often required to​ give buyers a​ chance of​ meeting market prices and seller expectations.
Repossession of​ property is​ currently at​ a​ historically low level and people have more disposable income making it​ easier to​ pay their mortgage .​
50 percent of​ lenders now work out how you​ can borrow depending upon your ability to​ pay as​ opposed to​ the​ income multiple criteria discussed above.
This means that everyone applying for a​ loan is​ not assessed in​ the​ same way,​ the​ majority of​ lenders will be offered more money via this method,​ some however may not,​ for example single mothers.
How Affordability is​ Calculated
Every lender has a​ different method for working out how much they are prepared to​ lend you​ .​
All of​ them will however ask for proof of​ income,​ number of​ dependents,​ other monthly commitments (credit cards,​ store cards,​ etc),​ and your essential household spend.
Interest rates will also affect your repayments .​
Unless you​ choose a​ fixed rate mortgage,​ which keep interest on​ the​ mortgage at​ a​ fixed rate .​
Interest rate rises can affect a​ borrowers ability to​ repay,​ so it​ is​ an​ important consideration when taken out a​ mortgage.
How to​ Avoid Get Into Problems
It is​ your responsibility to​ ensure that you​ do not borrow more than you​ can afford,​ banks and lenders obviously have precautions in​ place to​ protect their investment,​ interest rate fluctuations and other potential commitments have to​ be taken into consideration before taking out a​ mortgage that could leave you​ in​ trouble.
Check out some online mortgage calculators as​ this will lay out the​ figures clearly in​ front of​ you​ so you​ can consider your options.
If you​ are a​ first time buyer it​ is​ important to​ take into account some other outgoings such as​ buildings insurance,​ mortgage payment insurance,​ etc.
Read the​ Key Facts illustration from your lender or​ broker this will show you​ the​ difference interest rate rises or​ falls can make to​ your payments.
If you​ choose a​ fixed rate deal dont forget you​ may only be on​ a​ low rate for a​ short period of​ time after which time your rate can suddenly increase.




You Might Also Like:




No comments:

Powered by Blogger.