One of the first tasks house buyers will face is understanding how much they can borrow from a mortgage lender.
In recent years, borrowers have traditionally been able to get a loan of up to 4.5 times their income from a high street bank, although in some cases more if they have a high income and existing wealth.
There are also options beyond the major banks as some specialist providers have started offering up to 6 times salary as they battle to win customers in today’s competitive market.
The traditional rule of thumb when it comes to how much you can borrow is four to 4.5 times income but some lenders will go higher for an exceptional client with a clean credit history, consistent verifiable income, and minimal expenditure.
Borrowers should be aware that they must also meet strict affordability tests in order to take out a loan. Lenders have been required to apply more stringent checks in the wake of the financial crisis.
Before the crash, borrowers could access huge sums of cash with few affordability checks. Now lenders search deep into an applicant’s income and outgoings before deciding whether to approve a loan.
Income multiples still underpin mortgage underwriting but maximum multiples only apply if the applicant can satisfy many other factors such as verifiable and consistent income and a clean credit score.
Banks now consider all your outgoings, such as outstanding loans, credit card debt and day-to-day spending, as part of the application process. If you have children, the cost of raising them will also be taken into account.
Couples are able to borrow more by combining their annual earnings and sharing the cost of their spending.
But whether you are a couple or an individual, applicants with the largest deposits and highest overall income will generally have access to the cheapest rates.
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