How much deposit do I need to put down?

First Time Buyer Mortgage Advice in Sheffield

First time buyers, home movers, landlords and the self employed will always ask the same question when it comes to applying for a mortgage – “how much can I borrow?”.

The answer varies depending on your individual situation. For example, how much you can borrow could change depending on your credit score, income, bank statements and your personal situation.

Let’s take a look into ‘how much you can borrow for a mortgage’ and how things have changed following the credit crunch.

Historic rules when borrowing for a mortgage

Long before the credit crunch, credit scoring was non-existent and mortgages were manually assessed by your local building society manager. Then, during the 1990s, lenders started performing income assessments to provide a consistent approach across applicants.

Maximum lending caps were also introduced. This meant that customers couldn’t borrow more than three to four times their annual income. Scary to think that before people could!

Despite these lending caps in place, in the early 2000s, lender’s income multipliers grew more generous. This meant that more and more people were borrowing more than they can afford to pay back. Furthermore, some lenders were even allowing some of their customers to ‘self-certify’ their income with minimal/no background checks such as payslips.

Of course, all of this went very wrong. Lenders were lending to applicants that couldn’t afford to pay them back, therefore the market crashed and all of sudden, it became extremely hard to get a mortgage from 2008-2010. Lenders tightened their margins and created a cautious (over-corrected) lending environment.

Nowadays approach to how much I can borrow

In 2014, the Mortgage Market Review (MMR) was introduced. This initiative helped the market get back up on its feet; it 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 affordability 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 at 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 showing up on your bank statements can sometimes affect your chances of being accepted. 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.

Mortgage Broker in Sheffield

If you are currently trying to work out how much that you borrow, we would recommend trying our online free affordability calculator or speaking to us for a more accurate measure. 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.