If you are wanting to know the maximum amount you can borrow for a mortgage, you can book yourself a free mortgage appointment to speak with one of our expert Mortgage Advisors in Leeds.
From our experience, the two most popular questions we find that First Time Buyers in Leeds in and Home Movers in Leeds ask us are; can I get a mortgage in my situation and if so how much can I borrow?
Here we will take a closer look at the latter of the two, which has changed a lot in the past decade, followed by what happens now during your mortgage process.
Looking back to the 90s, before credit scoring was a thing, people would manually underwrite all mortgage applications, which means that the process of approving mortgages got left to real people and not just computers.
You would book an appointment for an interview with your local building society to speak to the building society manager. From there, you would present and discuss your case.
Back then, you could probably guarantee that this would turn into a sales pitch, where they would assist you to start saving with them for a while until you can prove to them that you are creditworthy.
The manager would then grant you what a past equivalent of today’s Agreement in Principle was. Following this, the customer would then be given some advice on the amount they could borrow.
While sounding like a highly personalised process with a simple and common-sense approach, there were many wrong decisions. The manager had the discretion to interpret the lending manual in the way that they wanted to.
In other words, you could have gone to the same building society in a different location and left, having obtained an entirely different outcome than the previous branch you visited.
To prevent this and to cut any costs that weren’t necessary, lenders started using automated affordability, so when lending to customers, only provide them with a figure three or even four times their annual income.
Going forward to the early 2000s, lenders relaxed, even more, becoming arguably even too generous in how much they would be willing to lend their customers.
Some lenders would offer out self-certified mortgages, a process that meant no background checks would take place, and the customer could self-certify their income, even if the buyer falsely inflated the amount they were declaring.
The market fell apart, and these kinds of practices brought about the infamous Credit Crunch of 2008. The years that followed, between then and 2010, were incredibly challenging times.
This was especially the case if you were trying to get onto the property ladder for the first time. At this point, lenders had to change, and much stricter lending criteria had to be put in place.
Through lots of dedication and perseverance, the market recovered. In 2014 the regulator launched the Mortgage Market Review (MMR), a brand new and completely revised set of guidelines for lenders to follow to prevent the Credit Crunch from happening again.
No longer were the old-style income multipliers available, which took little account of household spending habits.
It may come as quite a surprise, but before 2014, whether their credit histories were good or bad, two applicants earning the same income could more or less be able to borrow the same as each other.
This was also not factoring in how much they were regularly spending. All-new affordability models came from that point, taking a much more forensic view of how exactly those applying for a mortgage handle their finances.
As well as this new cap, typically, most mortgage lenders will no longer go past 4.75 times your annual income, and they prefer to have an in-depth analysis of your spending habits.
Your habits may entirely depend on your situation, such as having high childcare costs, a potentially large amount of credit commitments, and in some cases, any student loans to pay off. In cases like these, a mortgage lender will most probably offer you less than, say, your work colleague who has far fewer outgoings.
Nowadays, there are significant differences between lenders in how much or little they will lend to some customers. From time to time, some lenders have been known to penalise low-earners.
It could just be that they are not looking for that type of applicant. Some take pension contributions as a fixed outgoing, so may lend, for example, a public sector worker with a significant pension deduction, less than a private-sector worker.
Each of these different lenders has its unique lending criteria, and each customer has its own situation. Suppose you need to maximise your borrowing capacity to have a chance at buying your dream home.
You will highly benefit from expert Mortgage Advice in Leeds. Our team will search the market on your behalf to try and match you to various lenders criteria.
If you want to know exactly how much you should borrow for a mortgage and are ready to go, please get in touch and book yourself in for a free mortgage appointment to speak with one of our Mortgage Advisors in Leeds today. We will talk to you and work out your finances with you to ensure you are comfortable with the maximum amount you can borrow and what your monthly payments will be.