When it comes to buying a home, one of the most important factors to consider is affordability. After all, you don't want to stretch yourself too thin financially and end up struggling to make your mortgage payments. That's why affordability assessments are a crucial part of the mortgage application process.
Many lenders in the UK restrict the amount that can be borrowed as the loan-to-value ratio increases. In other words, if you have a lower deposit, you'll be able to borrow less, while those with higher deposits may be able to borrow slightly more. Additionally, the multiple of income used to determine affordability is typically capped at a maximum of 5 times for larger deposit levels, but this is reduced to 4.49 times on lower deposits.
In addition to these factors, outstanding credit repayments are also taken into account during affordability assessments. Lenders will annualise your outstanding credit payments and deduct them from your income. Credit card balances are also assessed at 3% of the balance, annualised, and then deducted from your income. This means that reducing your current borrowing as much as possible before applying for a mortgage can help to increase your available borrowing amount.
It's important to remember that affordability assessments are in place to protect both the borrower and the lender. While you may be tempted to borrow as much as possible to buy your dream home, it's crucial to ensure that you can comfortably afford the repayments. After all, falling behind on your mortgage payments could have serious consequences for your financial future.
So, what can you do to ensure that you're able to pass an affordability assessment?
Here are a few tips:
Increase your income: This may seem obvious, but the higher your income, the more you can borrow. Consider taking on extra work or negotiating a raise at your current job.
Lower your existing debt: If you have existing debts, paying them off or reducing them can increase your affordability. This includes credit cards, personal loans, and car loans.
Save for a larger deposit: As mentioned earlier, higher deposit levels typically result in being able to borrow more. Saving for a larger deposit can help increase your affordability.
Improve your credit score: A better credit score can make you a more attractive borrower to lenders and may result in better mortgage offers with higher affordability.
In conclusion, affordability assessments are a crucial part of the mortgage application process in the UK. By understanding the factors that are taken into account during these assessments and taking steps to improve your financial situation, you can increase your chances of being approved for a mortgage and ensure that you're able to comfortably afford your repayments in the long term.
At Mortgage321, we can help you assess your maximum affordability for a mortgage and provide guidance on how to increase it. Contact us today to speak with one of our experienced mortgage brokers.