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Income and affordability
This
might seem obvious but, when people are worried about
the state of their credit and are wanting to apply for a
bad credit mortgage or an adverse credit mortgage - how much they can borrow (or
what is affordable) can sometimes be overlooked by
the borrower.
We have
listed below the main ways in which a lender will work
out what they deem as affordable - after reading below
you will understand why we do not use an automated mortgage
calculator on this site!
Lenders
work out who can afford what in various different ways,
however they will use similar methods to the ones
described below - we would suggest speaking to a
specialist broker prior to applying for a mortgage to
ensure any new mortgage is truly affordable based on
your individual circumstances.
Income Multiplier:
You are
probably familiar with this, the lender takes your
annual salary, multiplies it by a number (depending on
lender) and they will lend up to that amount
Example…
3x
income multiplier - annual salary of £30,000, times this
by 3 gives £90,000 – this is the total amount the lender
would be prepared to lend.
Mortgage to Income Ratio (MTI):
The
lender works out your monthly income, takes a percentage
of this (the % will depend on the lender) to cover the
mortgage payments:
Example…
The
lender works on an MTI of 30% - they will
take your monthly income and take 30% of that, as long as your new
mortgage payment does not amount to more than the 30%
they deem it affordable.
Debt
to Income Ratio (DTI):
The
lender will allow a certain % (set by the lender) of
your total monthly income to cover all creditor and
priority debts,
including the new mortgage payment. If your total debts
do not amount to more than this they will deem it
affordable
Example…
If you
earn £50,000 per year and the lenders DTI is 40% of your
monthly income - approx £1666.00 - the lender will deem
the mortgage affordable as long as the
monthly cost of all your debts, including the new
mortgage payment, do not exceed £1666.00
Affordability Calculation
The
lender looks at what you have coming in (wages, tax credits etc) on a monthly basis and then looks at
what you have going out (what you spend each month)
including living costs, council tax, food etc.
They
then do a calculation (which could be as simple as subtracting
your outgoings from your income) and if the income
covers the outgoings (dependent on what the individual
lender will allow) the mortgage is deemed affordable.
The
majority of lenders use one or a combination of the
above to work out if a new mortgage is to be deemed
affordable - the
main thing to consider, even if the lender deems a
mortgage to be affordable, is that you are happy with any new
payments and you are certain they're affordable to you.
Baker
Financial will take all relevant factors into account,
such as the lenders views, your views, market
conditions, including the possibility of future interest
movements and any possible changes which may occur to
your personal finances before making our recommendation.
Bad
credit mortgages and bad credit remortgages need much more scrutiny than a ‘normal mortgage’ due to the
financial issues people deal with every day when,
usually through no fault of their own things have gone
wrong - we would strongly recommend using only a bad
credit mortgage specialist.
It is sometimes the case that
any new mortgage or remortgage will run alongside
existing bad debt, setting up the payments and ensuring
existing commitments can still be met is obviously very
important.
Baker Financial have many
years experience dealing with bad credit, both
mortgaged finance and none mortgaged finance, if you
want to speak to a specialist - speak to Baker
Financial.
- contact us today
We
do not just look at the initial interest rate
when making a recommendation, we look at the package as
a whole, what can it do for you, your family and your
finances, long term as well as short term, only after we
have discussed all these factors in detail will we
decide on a best way forward - with straight forward, no
nonsense advice that works.
use our experience to get the best
results possible
- contact
us today
you may also be
interested in
loan to value
explained
what is bad credit
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