Buying a home is a significant financial milestone, and securing a mortgage is often a crucial step in this process. TSB, a prominent retail and commercial bank, has established a set of mortgage affordability criteria to ensure that potential borrowers can comfortably manage their mortgage payments. These criteria play a vital role in determining who qualifies for a mortgage and the amount they can borrow. With the help of a qualified and specialised mortgage broker like Oportfolio, you can navigate lender affordability criteria to secure the best route forward. In this blog, we explore TSB’s mortgage affordability criteria and what you need to know before applying for a mortgage with them.
TSB’s mortgage affordability criteria heavily relies on an individual’s income. This is a crucial factor as it determines the borrower’s ability to make consistent mortgage payments. TSB typically assesses both the borrower’s regular income and any additional sources of income. This might include salaries, wages, bonuses, overtime pay, self-employment income, and other stable revenue streams. For employed people, generally they use 100% of any base salaries and a percentage of any extra income like bonuses or overtime. For loans over £100,000 and less than 85% loan, they can potentially lend up to 5.50X income. For higher loan to values (90% or more) the income multiple is capped at 4.49X income. Similarly to other lenders, TBS’s mortgage affordability criteria states that a self-employed person’s income will be determined by and average of the last 2-years income figures after tax.
One of the fundamental aspects of TSB’s mortgage affordability assessment is the debt-to-income ratio (DTI). This ratio compares the borrower’s total monthly debt payments (mortgage, loans, finance agreements, credit cards) to their gross monthly income. TSB usually aims for a DTI of around 43%, which means that your total monthly debts, including the new mortgage payment, should not exceed 43% of your gross income. This is to ensure that borrowers have a reasonable amount of their income available to cover other essential living expenses. Their other criteria around debt-to-income and commitments says that applications will be declined when the credit score confirms the applicant has:
- Opened three or more accounts e.g. credit card or personal loan in the last six months, OR
- Their unsecured commitment balances have increased by more than 20% in the last three months
- The total monthly payments for unsecured commitments are more than 20% of gross monthly income – based on combined unsecured commitments and the amount of income used in affordability for joint applications. OR
- The balance of total unsecured commitments is more than 100% of gross annual income – based on combined unsecured commitments and the amount of income used in affordability for joint applications.
Credit history is another critical component of TSB’s mortgage affordability criteria. A borrower’s credit score reflects their financial responsibility and creditworthiness. TSB generally prefers borrowers with a good credit history, as it demonstrates their ability to manage credit obligations effectively. A solid credit score can not only influence whether a borrower gets approved for a mortgage but can also impact the interest rate they are offered. Normally a mortgage broker will help a client to check their credit score prior to committing to a full mortgage application. If your credit file does not fit with TSB, then your broker will be able to help you to find a lender who may consider your application.
Loan-to-Value Ratio (LTV):
The loan-to-value ratio is the ratio of the mortgage amount to the appraised value of the property. TSB considers the LTV when assessing a borrower’s mortgage application. A lower LTV ratio indicates a larger down payment, which can positively affect the borrower’s mortgage affordability. A higher down payment reduces the risk for the lender and can lead to more favourable terms for the borrower. For purchases up to £570,000 TSB will consider lending up to 95% (5%) deposit, although the lending will be capped at a maximum of 4.49X your income. For a full list of TSB’s lending limits, you can speak with an advisor at Oportfolio Mortgages.
Affordability Stress Testing:
To ensure that borrowers can handle potential interest rate increases, TSB employs affordability stress testing. This involves calculating whether a borrower could still afford their mortgage payments if interest rates were to rise. This is a prudent approach to prevent borrowers from becoming financially strained in case of economic fluctuations. Currently, according to TSB’s website criteria, they apply a 9.5% stress rate to all applications, including first time buyers.
Other Financial Commitments:
In addition to considering income and credit history, TSB’s mortgage affordability criteria also factor in other financial commitments. These may include existing loans, credit card payments, and other regular financial obligations. TSB wants to ensure that borrowers have the capacity to manage their mortgage payments alongside their other responsibilities. Using their own specifically designed lender calculator, TSB will factor in all your monthly credit commitments and then compare them to your income and your newly proposed mortgage to make sure that you can afford to have that level of financial commitment. Your mortgage broker will run this calculator for you.
Age and Loan Term:
The age of the borrower and the desired loan term can also influence TSB’s affordability assessment. Younger borrowers might have more time to increase their income over the course of the mortgage, while older borrowers might have more stable income but a shorter time. The loan term chosen also impacts monthly payments – shorter terms may have higher monthly payments but less overall interest paid. The minimum age that you can apply for a mortgage with TSB is 18. If you are using employed or self-employed income for mortgage purposes, then the maximum age is 70 or your anticipated retirement age (whichever is lower). If you are using pension income only, the maximum age is 75. For joint applicants it is based on the age of the oldest customer. The maximum mortgage term for any TSB mortgage is 40 years, as long as you still fall into the aforementioned age limits.
Professional Mortgage Advice:
Navigating TSB’s mortgage affordability and any other lender’s criteria can be complex. As such, seeking professional financial advice from a mortgage broker is highly recommended. Mortgage advisors can help borrowers understand the criteria, assess their personal financial situation, and guide them through the application process. Professionals such as Oportfolio’s brokers can offer invaluable insights into maximising affordability while making smart decisions. If you or anyone you know is interested in learning more about TSB’s mortgage affordability criteria, or just want to see what your general mortgage options are, then please feel free to give our team a call today. We are here to help.