In general, it’s safe enough to start with a guide of 5 times your gross annual salary. Of course, this is way too simplistic as mortgage lending has come under high scrutiny in recent years after some notable problems in the UK which has led to tightening of criteria across the board. The key considerations are-
Income
This is the simple bit! We gather documentation to prove your income including any additional items such as bonuses or rental income. If you are an employee you will need to have completed any probationary period. Self-employed applicants will ideally have two years accounts to demonstrate earnings.
Outgoings
Naturally, we also need to look at your regular commitments and the type of regular payments you make. Clearly someone with a long list of existing personal commitments will not be able to borrow (afford) as much as someone with no other payments to meet.
‘Cash’ is king!
In the vast majority of cases you will need to have at least 10% of the purchase price as a deposit. However, if you are able to put down more than this it will usually allow you to access a more competitive interest rate and you will also find that lenders will very slightly relax their criteria. So, if you can put more towards the purchase the lender will probably be more generous.
Timing…
As you might expect, you will be expected to repay the loan before you retire. With the standard retirement age extending many lenders will now consider loans of up to 30 or even 35 years provided the debt is scheduled to be repaid by the time you retire.
So how can you find out?
Sadly, until you have found a property, applied, and had the mortgage approved, you really won’t know for certain if you can borrow what you need to! We know that sounds a bit daft but it’s just how the lenders work!
Happily, we can usually give you a really good guide by considering all the above factors and running through the costs with you. Some lenders do offer a pre-approval service which is reassuring and in most cases will provide you with the confidence to start viewing properties and eventually make an offer.
For more complex situations we will provide the lender with a draft application pack and ask for pre-approval on an ad hoc basis.
Above all, speak to one of our advisers as soon as you start thinking about moving so we can work together to get the best possible result and hopefully make the process enjoyable rather than stressful!
To find out more email info@decarteretwealth.com or telephone 01534 860660.
