Income multiples and affordability calculators.
Gone are the days when a lender used to simply calculate the mortgage loan available by multiplying your income by 4 or 5 times. Today it’s so much more intense! For example, a lender will require to know your monthly budget spend figures, right down to every direct debit on your bank statements, including council tax, insurances, mobile phones, lottery payments and gym membership! From these monthly outgoings, the lender will look at affordability and decide from there what mortgage amount might be available to you. However, on the other side, not only can it be restrictive depending on your monthly outgoings, but it can also be very generous depending on what little outgoings you have! The lender has a duty to make sure you can afford your mortgage today, as well as once rates rise and specifically being affordable over a 5 year period.
As loans become more and more competitive, this has seen some lenders lending well in excess of an equivalent 5 x income and some even up to 7 times! For the right loan to value, right affordability and right customer, lenders are willing to offer a little bit more. And with rates so low, now’s a good time to be exploring these options.
What I do believe is that 2017 will be a very competitive year. There’s been a lot of talk about rates increasing, but so far this year, they’ve actually only decreased. With a further twenty or more applications in with the regulator for lending licences, this can only mean greater competition and good news for the end consumer. Don’t panic just yet!
However, a lot of people put changing their mortgage to the bottom of the pile or the ‘to do tomorrow’ list. Of course, this keeps getting delayed behind the ‘save £20 a month on broadband’ or ‘update the pet insurance’ chores. Yet the mortgage is the biggest debt you’ll ever have and probably one of the easiest to save on. So don’t put it to the bottom of the pile. Rates may be low now, but there’s no guarantee they will stay that way.