The first step in getting a mortgage is working out how much you are going to try to borrow. The main influence on the amount of money that you will be able to borrow is your gross income. You will usually have to show evidence of your salary in the form of pay slips, or at least a reference from your employer that confirms your salary details. If you are self-employed, you will usually need a reference from your accountant and three years worth of audited figures.
Lenders vary quite a lot in the multiples that are used to work out how much money you can have. The standard income multiples that are used are around three to three and a half times an individual salary. When calculating the maximum that will be lent to a couple, it is usually in the region of two and a half times the joint salary, or three times the higher salary plus the lower salary.
Commission, overtime and bonuses are not normally considered as part of your gross income by the lender, unless you receive them at a guaranteed level. Any supplementary payment that is not guaranteed but which can be shown to remain above a certain level over a period of time can sometimes be taken into account, though many lenders will only incorporate a portion of this money into the calculation.
Your relationship with the lender may influence the amount they are willing to lend you. So might your credit rating, your stage of career, the amount of equity you already own in your home and whether you play golf regularly with the branch manager. Even with high street lenders, you can sometimes push your borrowing level up to four times your salary or three times your joint salaries.
To further confuse matters and leave you no closer to knowing how much you can borrow, an increasing number of lenders now use an affordability rating to assess how much money they will lend you. This means that they don't simply take your salary details and multiply them by a factor to come up with a ceiling on your borrowing. They do take into account your income, but also your monthly expenditure and how much you have available for repayments. Your repayments each month must not go over a certain proportion of your take home pay minus your expenses.
Shop around, try a few different types of lender and unless you are being very unrealistic, eventually you should be offered a loan value that suits your needs.
Be aware: if the property is too old, it may affect the bank’s mortgage decision. In the past, many banks would only grant mortgages where the sum of the mortgage term and the age of the building was less than 40 years. Therefore, you can only get a 10-year mortgage on a property that is 30 years old.
In recent years, many banks have relaxed this practice, particularly with buildings in reputable developments where the buildings are well maintained. Nowadays, most banks will grant a 20-year mortgage on a 30-year-old property. However, if you are considering buying an older property, especially if it is not in a major development, check with your bank first. |
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