How Much Can I Borrow?
One of the first questions we are asked is, How Much Can I Borrow? It’s not quite as simple as it used to be and we will need to gather a little more information from you before we can say with any certainty.
Since April 2014, lenders are required to be more stringent about how much they will lend. They must be certain that a mortgage is affordable both now and in the future, should interest rates rise.
A budget plan is required by all lenders to assess affordability. Essential expenditure like loans, utility bills, rates, school fees, maintenance, food and transport costs are required to work out how much disposable income you have. The lender is also required to satisfy themselves that your disposable income is sufficient to repay the mortgage (stress test) not only at the current rate of interest but also if interest rates were to rise by say 1% or 2%.
The level of budget information and stress testing varies between lenders, so the amount that you can borrow from one lender will not necessarily be the same with another lender. Lenders will also take into account or exclude different types of income when working out how much they will lend; for example, some lenders may only take into account a percentage of dividend income while others might allow all dividend income or even profits from a company if the mortgage applicant owns more than, say, 20% of the company.
How it used to be
Historically, mortgage lenders would allow you to borrow a multiple of your income less monthly credit commitments and the mortgage amount would have to be within a given percentage of the property’s value.
With a loan of £139,200 you might be able to buy a property worth £154,666 if the lender allows a mortgage of 90% of the property value – this is called 90% loan to value (90% LTV)
The amounts above vary from one lender to another. For example income multiples, percentage of over-time and LTV differs between lenders.