Currently, the only hard-and-fast rule on the size of mortgages is that your mortgage has to be affordable to you. It’s down to each lender to determine how they interpret that. Specific policies can and do vary. There are, however, some general points that tend to remain consistently valid. Here is a quick guide to what you need to know.
Multiples of income are still a valid baseline
The Mortgage Market Review stopped lenders from basing lending decisions purely on multiples of income. It did not stop them from using multiples of income as a convenient baseline for making decisions.
At present, you should expect lenders to have a default cap of around 4.5 times income. This cap is, however, likely to be at least somewhat flexible. Remember, however, that this works both ways. In other words, lenders can lower the cap for riskier borrowers. They may also increase it for safer ones albeit possibly not by much.
Job security matters
In principle, anyone can find themselves out of a job, even if only temporarily. In practice, some people are much more at risk of unemployment than others. The two key factors determining your vulnerability to unemployment are your job/skills and your employment status.
From a lender’s perspective, the safest mortgage candidates by far are employees with in-demand skills. They do not have to be professionals. Tradespeople also tend to be highly regarded. They do, however, need to have some marketable skills. The riskiest candidates are people who are self-employed in areas where supply outranks demand (e.g. the creative industries).
If you are employed, your employer and length of service with them may also play a role. As with individual jobs, some employers are seen as being safer, overall, than others. Their industry sector will usually play a role in this as will the length of time they’ve been established. Similarly, the longer you’ve been with an employer, the safer you may appear.
Deposits are reassuring
The bigger a deposit you have the less at risk your lender is. This means that a lender may be prepared to lend you a higher multiple of your income. Keep in mind, however, that the lender will still need to be happy that you can genuinely afford your repayments over the long term. They will also have to factor in the (strong) possibility of interest-rate rises.
With that said, if you’ve been able to save a hefty deposit, you probably have your finances in pretty good order. This will work in your favour. Gifted deposits can be more of a grey area. Some lenders will either not allow them at all or will restrict them. Even where they are allowed, they will not be seen as favourably as a deposit you have saved yourself.
Your financial history will be key to success
Your credit record will give your lender a baseline idea of your ability to manage your finances. This is, however, only a starting point. Lenders will typically ask for 6 months worth of bank statements. These genuinely will be analysed in detail.
This means that (at least) six months before you (re)apply for a mortgage, you should be thinking carefully before you put anything non-essential on your debit card. In particular, be careful before making any purchases that could raise a red flag with your lender (e.g. gambling).
Some properties are easier to mortgage than others
In simple terms, the easier a property is to sell, the easier it is to mortgage. To measure this, think about a property’s features. Then ask yourself, how various demographic groups would be likely to feel about them. The bigger the group of people who might be interested in the property, the easier it is likely to be to mortgage.
For advice about mortgages, please do get in touch.
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