Hello – wow, how quickly did the summer fly by?!
The nights are drawing in and the days are getting cooler and shorter.
If sorting out your mortgage was something you hoped to get done over the summer then it’s still not too late, so why not get in touch and we’ll review your current arrangements?
People often ask how much they could borrow.
The short answer it: “it depends”!
Lenders will assess your mortgage affordability taking various factors into account but in a nutshell, the following are probably the main questions:
- Is it a residential mortgage or a buy to let mortgage?
- How much “verifiable” income do you earn?
- What are your current financial commitments?
Buy to let or Residential Mortgage?
Residential mortgage affordability is assessed on whether or not the mortgage payments are affordable (in the opinion of the mortgage lender) based on the combined income of all applicants after taking into consideration all committed financial outgoings, over the requested mortgage term.
Buy to let mortgage affordability is normally a straight-forward calculation. Does the rental income that could be achieved on the property cover the mortgage interest by the necessary amount*.
If the rent does NOT cover the mortgage interest by the specified amount it normally means you would need to put down a bigger deposit to make the figures work.
*The actual calculation varies by lender. There is a “stress test” included in the calculation which means they will apply a higher level of interest than you would actually pay from the outset. In addition, the calculation may be different if you are a higher rate tax payer.
You would normally need to be earning an income of some kind in order to take out a buy to let mortgage but there is not always a minimum earned income. This is because a buy to let mortgage is only usually granted if it is perceived to be “self-funding”.
How much “verifiable” income do you earn?
You will need to be able to verify or prove your income.
If you work for an employer and receive payslips and P60s this is normally as straight forward as being able to provide payslips (usually 3 x most recent months will suffice) and a P60. If you earn quarterly or annual bonuses you may be asked for previous payslips as well.
If you are self employed you will normally need to be able to provide evidence of your tax returns. These will be in the form of SA302s and Tax Year Overviews which are available via your HMRC self-assessment account.
If you are a limited company you may need to provide limited company accounts.
If you receive a pension you may be asked for a P60 or award letter.
If you receive maintenance payments you may be asked for a court order letter or, if it’s not court-ordered, bank statements showing regular payments.
There may be other income which may be allowed and this should be checked out prior to submitting an application to confirm whether it is acceptable or not.
Cash in hand or allowances that are not regular (such as expenses) would not be considered “verifiable income” and could therefore not be used.
What are your current financial commitments?
Committed financial outgoings include anything that couldn’t be cancelled easily if need be. For example:
- Credit card balances
- Loan payments
- Hire purchase agreement payments
- Maintenance payments
- Student loans
- Ground rent and/or service charges which may be levied on leasehold properties
With so many things to think about, it’s a good idea to get help.
If you have any questions or would like to review your current mortgage arrangements please don’t hesitate to get in touch!
Phone: 01525 309300
Mobile: 07903 302895
Linked In: Heide Swift
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Facebook page: https://www.facebook.com/SwiftMortgages/
Use the hashtag: #SwiftMortgages to keep in touch!
Your home may be at risk if you fail to keep up the repayments on your mortgage.
The Financial Conduct Authority does not regulate Buy to Let mortgages.
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