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The affordability of your mortgage repayments is one of the most important aspects that must be taken into account when you are arranging a new mortgage, especially for the first time.
Here we offer an in-depth explanation of Affordability and borrowing, and how we can help you, so that you don't fall into the trap of over-committing your financial budget!
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Obviously, the answer should be "No more than you can comfortably afford"! Affordability is a very important aspect when it comes to borrowing. In the excitement of purchasing a new home, there can be a a danger of over committing your financial budget, and biting off more than you can chew! In order to ensure that borrowers can comfortably manage their monthly mortgage commitment, lenders will apply some form of formula to the available income.
Traditionally, Building Societies have calculated affordability based on "income multipliers". Since the 1960's the conventional method for most lenders would be to apply income multipliers of 3+1 to a couple requiring mortgage funding. So to calculate the level of borrowings the society considered affordable would be based on 3x the main earner's basic salary, plus 1x earnings from the co-applicant.
Forty years on, the mortgage marketplace has flourished and expanded. Successive governments have encouraged competition, and new types of lenders have entered the arena, providing evermore competitive and innovative products, including the ability for customers to borrow more than the somewhat conservative attitudes laid down by the building societies in the 1960's.
No longer are borrowers restricted to 3x their salary alone. Most lenders nowadays will give as much weighting to overtime, commission and bonus payments, as they will basic salaries. Furthermore the partner's income will be accepted as being of equal importance towards the affordability factors.
Lenders have a variety of sophisticated methods to check the affordability of mortgage payments. Some of these nowadays are applied against total debt to gross income, usually to a maximum of 50%-60%. So, for instance, if borrowers had a monthly joint gross income of £4000.00; on this basis, the lender may allow 55% to cover all financial commitments, including the new mortgage. In this case, the lender would allow monthly financial commitments of up to £2200.00.
In old terms, this can convert to income multipliers as high as 7x income. However, such larger multipliers will usually only apply to borrowers having higher incomes, especially where commission or bonus payments play a large part of their earnings.
Nevertheless, conventional income multipliers have been more realistically reassessed in recent years, providing income stretchers in appropriate circumstances. For example, one major lender applies income multiples of over 5.5x in certain circumstances, especially where the interest rate is fixed for a minimum 5 year period, where the customer benefits from a degree of repayment stability during the early part of their loan.
Self-employment can have its problems and getting a mortgage needn't necessarily be one of them!
Those earning their income on a self-employed basis, will have often found that they are cold shouldered when it comes to arranging a mortgage. Not so at Shire Direct! We understand that accounts may not be reflective of current disposable income. For a start, accountants devise financial statements to mitigate their client's tax position, and of course the balance sheet is merely a snapshot of a historic financial position on a day, often several months previously.
Because of this situation, many lenders these days will consider self-certification of income, which more accurately reflects current available income, from which affordability of repayment can be better gauged.
Hopefully, we've managed to explain and provide information and answers to any initial questions you may have concerning affordability.
Buying a home and arranging a mortgage on your new house is probably the largest personal financial transaction a borrower will ever enter into. As professional mortgage intermediaries, the first thing our qualified mortgage advisors will do is understand your circumstances, needs and aspirations. Advice and service always come first at Shire Direct. We'll carefully assess your situation and provide you with the most appropriate and affordable solution.
So, if you need to explore the availability and affordability of mortgage funding, and the amount you may be able to borrow, we would naturally be delighted to discuss your requirements with you. Call us on Freephone 08000 282 281, line are open seven days a week until 10.00pm, or contact us online. We assure you of a friendly and unstuffy personal and professional service, whatever your requirements. We feel we have the expertise and resources to come up with just the right solution for you!
The overall cost for comparison is 9.8% APR.
The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.
There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances.
For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.
THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Adding existing debt to your mortgage will increase the repayment term and overall cost.
Are you worried and becoming stressed because you are having problems getting a mortgage or remortgage? Worry and stress no more! Here at Shire Direct we provide tailor made mortgage solutions to suit you, and can usually help with all kinds of circumstances including...
Remember, we're here to help, and would love to hear from you!
Over £2,000 worth of Argos Vouchers to be won in the Shire Direct Grand Prize Draw 2008! Terms and conditions apply - please read article for full details.
Claim £100 worth of Argos Vouchers upon completion of your transaction throughout 2008. Terms and conditions apply - see our Vouchers Special Offer page for full details.
Shire Direct and Shire Direct Mortgages are trading styles of Shire Processing Centre Limited which is
Authorised and regulated by the Financial Services Authority in respect of regulated mortgage products and general insurances.
Registered No: 302389. Commercial funding and Secured Loans are not regulated by the FSA.
Licensed Credit Brokers. Consumer Credit Licence Number: 349999.
Shire Processing Centre Limited is registered under the provisions of the Data Protection Act by the Information Commissioners Office: Registration No: Z6795249. Registered in England & Wales. Company number: 2732202. Telephone calls may be recorded for training, monitoring and security purposes. All applicants must be aged 18-years or over.
