We always get asked “how much can I borrow”, it is by far the most popular question we receive as a First Time Buyer Mortgage Broker in Sheffield. Let’s look at the background of affordability assessments and how they apply post-2014.
Before the days of 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 introduced so that customers couldn’t borrow more than three to four times their annual income.
Near the time of the credit crunch in the 2000’s, 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 all went very 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 an extremely cautious (over-corrected) lending environment.
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 provided 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 unaffordable mortgages were not granted as they were before the Mortgage Market Review.
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 recommend speaking to a Mortgage Broker in Sheffield, like us. A Mortgage Advisor in Sheffield will research the market on your behalf and try to find a lender that will lend you the amount you need.
Before you take out a mortgage you should sit down with a First Time Buyer Mortgage Advisor in Sheffield and work out your finances together to ensure that the repayments feel comfortable to you.