One of the most popular questions we get asked here at Cardiffmoneyman is “How much can I borrow for a mortgage?”. In this post we will go into the details of affordability assessments and how they apply post 2014.
Back in the day, before the era of credit scoring, mortgages were assessed manually by your local Building Society Manager. Lenders moved towards more uniform income assessments to bring forward a more consistent approach in the 1990’s.
Maximum lending “caps” were introduced to prevent budding homeowners from borrowing more than 3-4 times their income.
Around the time of the early noughties Credit Crunch, these income multipliers started to become more “generous”. Shockingly, lenders would allow some customers to self-certify, without the need for background checks!
As you can imagine, that went very wrong. Post-financial crisis, everything became stricter, with far more rules being put in place to try and protect the market from future disrepair. This made getting a mortgage significantly more difficult for some.
In 2014, the mortgage market had managed to recover, and we were introduced to the Mortgage Market Review 2014. This was a new set of guidelines for Lenders to follow in order for things to go smoothly. The old income multiplier method was no more, and we saw the emergence of more sophisticated affordability calculators.
With these new calculators, it became possible to delve deeper in how the applicant was spending their money and what their net disposable income would be. Advisors were looking at bank statements more closely to make sure the customer could only get a mortgage they were able to afford. One of the many factors included regular large expenses such as childcare.
Lenders can get quite competitive with one another, on the likes of price and lending criteria. Because of this you will find that things like the maximum borrowing capacity can completely differ between lender. You may fit into a different niche depending on the lender, so if you are unsuccessful with one it does not mean your journey is over.
Some Lenders will take into account state benefits such as tax credits for a mortgage. Others are more generous if you are self-employed and looking for a mortgage. Taking out the longest mortgage available also opens you up to a larger amount you can borrow.
As time went by throughout the noughties, Lenders were a lot more lenient with how much they would lend. Some would offer self-certified mortgages without bothering to do a background check to see if they were being honest! Yet they wondered why it went wrong… Predictably so, the market crashed and the time between 2008 and 2010 were very difficult indeed, making it harder to get on the property ladder.
When the market eventually recovered in 2014, we saw the regulator launch the Mortgage Market Review (MMR). There is still a “cap” on how much can be borrowed (the majority of lenders prefer to stay below 4.75 times your annual income) but spending habits now become a factor in the process. Examples of these include high childcare costs, credit commitments and student loans. If you have any of these, you could be offered a lot less than someone earning the same amount who does not need to worry about those things.
We are still regularly surprised by what some lenders will and will not accept. In some cases, lenders may penalise low-earners (it could be that they’re not the type of applicant they want), some take pension contributions as a fixed outgoing so if you were, for example, a public sector worker with a big pension deduction that is less than a private sector and so on.
Different people are often better suited for different things. If you need to maximise your borrowing capability to secure your dream home, then you will definitely need the support of a Mortgage Broker in Cardiff. We will be able to work alongside you, seeing which lenders will be able to lend you the amount you were hoping to borrow.
It is important to sit down with an advisor prior to making any kind of offer, so you can figure out what is within the realms of affordability.