One of the most popular First-Time Buyers in Nottingham questions our Mortgage Advisors in Nottingham get asked quite often is ‘How Much Can I Borrow?’. In this article our Mortgage Advice in Nottingham will provide insights to the background of affordability assessments and how they are utilised by lenders.
Before credit scoring, mortgages were manually assessed by a local Building Society Manager, Lenders moved towards more uniform income assessments to provide a consistent approach towards customers in the 1990’s.
Maximum lending restrictions were introduced so that customers were not able to borrow more than averages that were near to or above 3 or 4 times their annual income.
Near to the time of the credit crunch in the 2000’s, these income multipliers became more and more ‘generous’. Some lenders further allowed customers to ‘self-certify’ their incomes without the security of background checks and evidence of necessary documents such as payslips.
This is partly the reason as to why the economy started to breakdown leading to a lenders having to correct it all over a long time period of the crumbling financial crisis which meant it was now harder more than ever to obtain a mortgage.
When the Market eventually gained stability, the Mortgage Market Review came out more thorough in order to keep the market in order. However, this meant there were new sets of guidelines for lenders to abide by and more updated sophisticated affordability calculators were introduced.
The newly updated calculators began to look deeper into an applicant’s spending habits and net disposable income. Bank Statements began to be closely inspected too to ensure that unaffordable mortgages were not granted as they previously had been. Circumstances such as Childcare costs were further taken into account whereas they were not beforehand.
Lenders compete on price but they also compete on lending criteria. There are numerous variances from Lender to Lender in terms of maximum borrowing capacity. It is because of the lending criteria competition that has led to different niches of clients to which lenders look for, so just because one lender says that they won’t lend you enough does not mean that you won’t get accepted by another.
Some Lenders will also take into account state benefits such as tax credits with a mortgage application whereas others may be more generous for self-employed mortgages.
As society progressed further into the 2000’s lenders became more and more generous in how much they would lend, some lenders were offering self-certified mortgages where no background checks would be carried out in relation to how much an applicant was earning. But towards the end of the decade, it became difficult to get onto the property ladder as lenders created a very cautious lending environment to patch up the damage which had been done.
The market finally managed to recover in 2014 with thanks to the Mortgage Market Review which meant that taking little account of household expenditure was a thing of the past and lenders spent much more time taking a forensic view of how mortgage applicants managed their money on a monthly basis.
A ’cap’ still remains in place, though most lenders will not go past 4.75 times your annual income, but spending habits are analysed also, so if you have multiple credit commitments, high childcare costs and a student loan you will be offered less of an amount as opposed to a work-colleague who doesn’t have any of that expenditure.
Even nowadays, lenders still surprise the mortgage market with how large the variances can be between lenders in how much they will lend. Some seem to penalise low-earners, and some may see pension contributions as a fixed outgoing so would often lend, say a public sector worker with a big pensions deduction less than a private sector and so on.
In order to gain the best chances to maximise your borrowing capability to obtain the home that you’ve set your sights on then you’ll need a First-Time Buyer Mortgage Broker in Nottingham by your side to carry out the proper research into the market on your behalf to see who will lend you which amount.
One of our First-Time Buyer Mortgage Advisors in Nottingham will work out your finances with you to ensure that the repayments that you settle for feel comfortable to you.