One of the most common questions we get asked from customers like first-time buyers in Grimsby is “How much can I borrow for a mortgage”. Let’s look at the background of affordability assessments and how they apply post-2014.
Back in the day before credit scoring, mortgages were manually assessed by your local building society manager. Lenders moved towards more uniform income assessments to provide a consistent approach in the 1990s.
Maximum lending “caps” were brought in so that customers couldn’t borrow more than 3-4 times their annual income.
At the time of the credit crunch in the 2000s, these income multipliers kept becoming more and more generous. Of course, some lenders allowed their customers to “self-certify” their incomes with no background checks such as payslips.
This went horribly wrong and it was a struggle to get onto the property ladder from 2008-2010. This is because lenders battened down the hatches and created a cautious (over-corrected) lending environment.
In 2014, the Mortgage Market Review (MMR) was introduced once the market had finally recovered. This brought a new set of guidelines for lenders to adhere to. The old income multiplier method was scrapped and replaced with new, more sophisticated affordability calculators.
These new calculators gave a closer look into an applicant’s spending habits and net disposable income. This meant that the lender could have an in-depth look into your bank statements to ensure that unaffordable mortgages were not granted as they were before the Mortgage Market Review was introduced.
To this day, there is still a “lending cap” in place at about 4.75 times your annual income but your expenditures are also analysed. For example, lenders seem to penalise low-earners and even things like gambling can sometimes affect your chances of being lent the money. Some take pension contributions as a fixed outgoing so would often lend, say a public sector worker with a big pension deduction less than a private sector and so on.
If you are looking to maximise your borrowing capacity to obtain the home you want to buy then we would advise you to speak to a Mortgage Broker in Grimsby, like us. A Mortgage Advisor in Grimsby will research the property market on your behalf and try to find a lender that will lend you the right amount that you need.
Before you take out a mortgage you should sit down and have a chat with an expert Mortgage Advisor in Grimsby and work out your finances together to ensure that the repayments feel comfortable to you.