If you are ready to consider buying, moving up the housing ladder or just looking to remortgage, chances are your mind has already turned to the task of getting a loan to make this happen. Most people will want to secure the best deal they can get.
However, it is also common to ponder which lender will lend the most mortgage to would be applicants. Most lenders now work on affordability and take into account your income and expenditure and then their internal algorithms provide a loan amount, others still work on a mortgage lending multiples. For example, a lender may say they will lend up to four or five times your annual income. The multiple is usually smaller if they are considering lending to joint applicants.
If you are applying as a solo applicant, a lender may say they will offer 4.5 times your annual salary. If you apply with your partner, that multiple might drop to 4.1. Individual figures will depend on the lender and their current practices. Suffice to say it is wise to shop around to see where you can get the best deal.
It is impossible to give a firm answer to how much a particular mortgage lender will lend, however as a general rule of thumb the larger and well-known lenders tend to appear near the top of the list when assessing who lends the most. In terms of the amount of money offered, this would depend on the amount earned by one or both applicants.
The more you earn, the more you could be offered. This is why it is difficult to provide a definitive answer as so many factors are taken into account and every lender changes their calculations and algorithms depending on how much they want to lend at any given time. If a mortgage company wants to take market share in a certain year, they will relax their criteria to potentially lend more to achieve this goal.
The above graph is based on a single applicant on a £40,000 employed income with a £5000 discretionary bonus (which has been paid over the last 2 years). The applicant has £3000 of credit card debt that will be ramaining and a £250 per month car loan with 5 years left to run. This will also be remaining. The figures are based on a 30 year repayment mortagge term and the applicant has no children.
The figures above are correct at time of going to press but are subject to change on a regular basis as lenders change their lending calculaotrs based on market sdhare ort other market factors. We’ve seen the loan-to-income multiple is the most important element used by lenders. This applies to both banks and building societies. They will also consider affordability.
Even if you can prove you are able to afford the monthly payments on a home advance now, it may not be enough to be offered a loan. You must also pass financial stress tests to determine whether you could carry on meeting your payments if interest rates were to rise. This can be frustrating, but it is best to know now rather than to run into problems in the future that could result in you losing your home.
They’ll look at your income and expenditure when considering whether to lend. It’s a good idea to reduce your expenditure as much as possible a few months prior to applying for a loan to buy a home. By doing so, you can present the best possible picture to the lender, improving your chances of getting the best deal.
Every lender uses different income and expenditure in their calculations. For example, when looking at income, some lenders may take the following into account: Pension income, investment income, allowances, overtime, benefits. For expenditure, some lenders may consider pension deduction, school fees, maintenance and others may ignore them. It’s a bit of a mine field out there and a reputable broker will know who considers what in their affordability calculations. The table below gives you an indication of how lenders differ in their approach to what they will use within their affordability calculators.
The above shows that lender B will offer the most to you, but what if this lender only offers you a 20-year mortgage term based on your age and Lender B could offer you a 30-year term making the loan that much cheaper? So many decisions and choices!While it’s nice to move into a property that needs nothing doing to it, that’s not the scenario some people are faced with. Some properties will need some TLC and basic decoration; others present the new owners with a huge renovation project to tackle. If you like the idea of that, you might be wondering whether you can get a home loan to cover the cost of renovations as well.
This proves a thorny situation for some, since it can be challenging to get the cash together to fund a project like this. Let’s suppose you spot a rundown property badly in need of work. Other similar properties in the area are worth around £500,000. This property, owing to the condition, is being offered for £385,000. You may need £50,000 to bring it up to an acceptable standard, at which point it would be worth roughly the same as the others in the area.
Your income level may mean a lender would be prepared to offer you up to £500,000 to buy a property. However, this doesnâ€™t mean they would lend you that amount to buy and renovate the property mentioned above.
They will only ever lend you the amount required to buy it, in this example, £385,000. That would leave you searching for the money you need to renovate it. If you wish to get a renovation loan, you would need to look for a specialist company to provide it, rather than going to mainstream lenders. Such mortgages are created in a way that allows you to buy the property, while releasing funds later to help you manage the renovations.
It is wise to seek expert advice if this is the type of loan you are looking for. Independent advisers and brokers may have knowledge of lenders who would prove a better fit than the ones most people think of when looking for a home advance. In this scenario, it may be better to hold back some of your deposit money and use it for the renovation. A lower deposit could mean a higher interest rate and of course a higher monthly payment but this could be the solution you require to have access to renovation funds.
We’ve looked at the issue of which mortgage company will lend the most to people who want to buy a property, whether they are first-time buyers, looking to progress up the housing ladder or re mortgaging for debt consolidation or home improvements. However, while looking at the most generous amounts on offer, it would be prudent to consider other elements before you decide what to do next. Today’s MMR (Mortgage Market review) rules mean it is far less likely that anyone would be offered a loan they could not afford to pay back. In the past, people could borrow beyond their means with no thought of what might happen if their income dropped or interest rates went up.
That was a huge part of the reason behind the last recession, not to mention why the MMR rules were brought in to start with. The idea was to make sure nothing like that ever happened again. Too many people suddenly found themselves in financial trouble. Some lost their homes. So, while it might be frustrating if you cannot get an offer as large as you would like, there are good reasons for it. If you are in this situation now, consider if there are ways you can improve your situation, so you present as a better prospect for lenders to consider.
It’s a fair question, but it’s also worth remembering a property is by far the biggest thing you’ll ever buy. House prices may fluctuate, but much like the stock market the trend is always upwards. Look back a few decades, and then further back still, and you’ll see what we mean.
Of course, house prices have risen sharply in recent years while wages have remained largely flat. While there have been increases, they havenâ€™t kept pace with the likely sums you’d part with each month to pay down your home loan. That has left many people unable to get on the housing ladder.
The good news is that interest rates have remained historically low for some years now. There’s never any guarantee they will remain that way, but those old enough to remember the high rates in the Eighties will appreciate how low they are now.
Affordability is a crucial part of the process. If you cannot currently afford to get a home loan, look more closely at your income and outgoings. Loans are calculated as a multiple of your income, so there will be a ceiling on what you can hope to get. Increasing your income isn’t easy, but you may wish to look at this if you aren’t satisfied with the amount you’re being offered. Conversely, if your income is fine but you don’t have the spare cash to meet the monthly payments, focus on your outgoings instead.
Most people can reduce these in several ways if they look at all the options. It’s not guaranteed, but if you want to make home ownership a reality, everything is worth considering. If you would like to discuss your mortgage requirements from a selection of over 9000 mortgage deals from over 90 lenders contact us now.