Thinking of buying a home this year ?
Then you’ll want to know how much you can borrow.
IT’S IMPORTANT TO GET YOUR ACCOUNTS IN ORDER FIRST THEN YOUR HOUSE
Here’s a quick check list to help work out the maximum you can borrow with some tips on how to get your accounts in order.
1. Calculate how much of your gross annual income before tax (joint income for a couple) is fixed and how much is variable
2. Then multiply the fixed (eg fixed salary) gross annual income by 4.5
3. Then take an annual average of your variable income (eg commission or overtime or bonuses) over the last 2 years and multiply that by 4.0 and add to above. This gives you an approximate cap of the maximum a lender will lend up to.
4. Check that your proof of income will pass the Lenders checks. Your payslips and bank statements must clearly show the income figures that you have calculated above. If you have choices over how you receive variable income then choose wisely to support the Mortgage Application to get the maximum cap.
5. Check the lenders affordability test by taking your net monthly income (after tax) and deducting all fixed regular payments that appear in your accounts / statements in the last 3 months (eg car loans, gym membership, TV subscriptions etc). This will give your residual or spare income.
6. Then calculate the monthly mortgage payment for a typical mortgage rate right now and multiply that by 1.5. This is because the lenders affordability test checks your affordability if interest rates were to increase. Use the online calculator here to work out the monthly mortgage payment
https://www.clarkesproperties.co.uk/mortgage_calculator.html
7. If the 1.5 x mortgage payment amount in 6 above is higher than the residual income amount 5 above then your lender will offer less than the cap and reduce the mortgage offer until the amount in 6 is lower than the amount in 5. Think about what regular commitments you can cancel repay or reduce within 3 months of applying for your mortgage as this improves the affordability test.
8. Clarkes recommend speaking to an independent mortgage broker (ie not your banks own mortgage advisor) for a more precise check and advise on how to prepare your accounts before applying for a mortgage.
To speak to one of our Property Consultants or Independent Mortgage Brokers please call 01202 533377 or e-mail enquiries@clarkesproperties.co.uk