Over recent years, with mortgages being harder to obtain, there has been a new urban myth generating, namely that you need to be earning mega bucks to even dream of getting a toe on the property ladder.
That does not necessarily have to be the case: what lenders largely look for is a borrower’s ability to pay their mortgage, which means a low income mortgage can be a real possibility.
Of course, making sure that somebody can pay their mortgage is one thing, but the banks still need to calculate how much is the maximum they will be prepared to lend to each individual. The traditional figure used to be three times the main, or sole, applicant’s salary, but since the recession the borrower’s ability has been much more important, and this can also go in favour of the borrower, even if you are on a low income.
Using a mortgage broker to help you find the best mortgage for your situation. By using a broker not only will you be sure that you are borrowing the most that you can have, but also that you are working with the best lender for your circumstances. Using a broker also means that you are not running unnecessary applications, which can impact on your credit rating: critical at a time when mortgage lenders can be selective about who they lend to.
Traditional methods for working out your mortgage amount
Some lenders still work on the basis of four times a joint income, so if you earned £20,000 and your partner earned £10,000, you could potentially be able to lend £120,000. There is a little variation available in this calculation, where excellent credit ratings are rewarded with a bigger loan amount. For single applications, the amount that you can borrow can be up to five times your salary, so for those earning £20,000, then the figure could be £100,000.
Mortgages based on affordability
Other lenders calculate the amount based on affordability. This reflects much more the idea that, since the recession, simply looking at a piece of paper does not prove that an applicant can pay their mortgage. Lenders are now choosing to assess a person’s income and outgoings to determine if the person is able to pay their mortgage or not. This could either increase or decrease the actual amount you can borrow, but as some lenders are prepared to consider other forms of income towards your actual income, for example Child Maintenance payment, it is quite possible that your borrowing ability is better than first expected. Each lender is different which is why it is recommended that you speak to an experienced mortgage broker such as Ascot.
Ascot Mortgages can discuss these methods with you, and tailor your needs to the right lender. If you have low incomes, then it might be better to use the salary calculation, but if you have higher outgoings, or debts, then it might be more sensible to go with a lender who uses the affordability calculator.
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