As mortgage brokers, we encounter a common question from prospective borrowers: “How much can I borrow?” Many individuals rely on the widely circulated notion that they can borrow up to 4.5 times their income. However, this oversimplified rule is just the tip of the iceberg when it comes to assessing mortgage affordability. In today’s mortgage landscape, lenders delve much deeper into a borrower’s financial profile through comprehensive ‘affordability assessments’ rather than a mere income multiple calculation.
Income Multiple Calculation For Mortgages: The Evolution of Mortgage Affordability Assessment
Gone are the days when income multiples were the primary factor in determining borrowing capacity. The regulatory landscape has evolved, demanding a more refined approach. Lenders now consider a multitude of factors, recognising that each borrower’s financial situation is unique. Here are some elements that impact the lending figure during affordability assessments:
- Deposit Size: A larger deposit, resulting in a lower Loan-to-Value (LTV) ratio, can lead to more favourable lending calculations.
- Earnings Amount: Higher income earners may be eligible for higher income multiples.
- Commission and Bonus Structure: The nature and frequency of additional income, such as commission or bonuses, play a role in determining affordability.
- Employment Stability: The duration of your employment in your current role can affect the lending decision.
- Employment Type: Self-employed individuals may face different, often more stringent, calculations than their employed counterparts.
- Existing Credit Commitments: Outstanding debts and credit commitments impact how much a lender is willing to offer.
- Dependents and Children: The number of financial dependents, including children, is considered in the affordability assessment.
- Maintenance Payments: Whether you receive or pay maintenance, and its formalization through a court order, is taken into account.
- Mortgage Term: The number of years for the full mortgage term influences the lending decision.
- Mortgage Product and Property Type: The type of mortgage product and the property itself (e.g., new build, flat, house) contribute to the overall assessment.
- Remortgage or Purchase: Whether you are seeking a remortgage or purchasing a new property impacts the lender’s decision.
Recent Changes in Criteria: A Case Study with Virgin Money
Virgin Money, a prominent UK mortgage lender, recently updated its new loan-to-income policy, showcasing the shift towards this more intricate approach to lending. Their criteria now varies based on income levels and specific circumstances:
Purchase or Remortgage with Additional Borrowing:
- Income under £50,000 – 4.49x
- Income £50,000 to £74,999 – 5x
- Income of £75,000 or more – 5.5x
- Max 4.49x LTI under specific conditions.
Remortgage with No Additional Borrowing:
- Up to 85% LTV – 5.5x
- Over 85% LTV – 4.49x
The Role of Expert Mortgage Advisors
When it comes to getting the right mortgage affordability, seeking guidance from an expert and knowledgeable mortgage advisor is so valuable. At Oportfolio Mortgages, we understand the intricate details of the mortgage market. Our experienced advisors can provide personalised advice, taking into account your unique financial situation and the latest lender criteria.
By consulting with us, you gain access to insights that may increase your mortgage borrowing potential. We navigate the complex web of affordability criteria, helping you secure the maximum mortgage available to you. Don’t let misconceptions about income multiples limit your possibilities; speak to an expert at Oportfolio Mortgages and embark on your homeownership journey with confidence today.