Work out how much you could borrow
As a general rule, to work out your maximum mortgage size, lenders would multiply your income by between three to five times.
But in 2014 the mortgage rules changed and working out the maximum amount you can borrow on a mortgage is now a little more detailed.
In short, lenders now have to check that you can afford the repayments on the mortgage at the current interest rate, but also if interest rates were to go up.
Lenders will also do this by comparing money coming in, and money going out. There’s nothing to worry about, they just need to know that you can comfortably afford the mortgage once you have it.
So, they’ll look at your monthly income against your monthly spend (on utilities, insurance, council tax, travel expenses, gym membership, entertainment) and your debts (credit cards, loans).
Lenders will look at your finances over the last three months, so if you know you are going to want to get a first-time buyer mortgage, to remortgage, or take out another mortgage in the months leading up to your mortgage application don’t go overdrawn, try to live within your means.
Your credit score is an indication of how lenders will see you and credit history is an important factor. Lenders want to see a pattern of regular payments against any credit card, store card debts or personal loans. If you have a credit card and use it regularly to buy petrol and pay off the balance each month it can have a positive effect on your credit rating. If you take out a credit card but never use it this can have a negative effect on your credit score.
How much you can borrow can depend on the length of the mortgage you are applying for and your age. If you are looking to borrow past retirement age this may require careful consideration. Lenders will generally offer mortgages up to the age of 75 and some even longer. Many will accept that you may work until you are 70, but will then require evidence of retirement income after this date.
A mortgage broker
will help to explain how lenders view any regular state benefits that you receive. Each lender can take a different approach, with some only accepting 50% of benefits as income. This is just one important area where the expertise of a broker can help.
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE