Let’s discuss the mortgage journey and how your salary will affect that.
If you’re thinking about making your first move on the property ladder, then congratulations! It’s an exciting position to be in.
For first time buyers, buying a property is a huge financial decision, and can be very overwhelming – especially if you have no idea where to begin! But at Evergreen Mortgages, we’re here to help you every step of the way home. We can advise you on the different stages of the journey and overall mortgage process.
Today we’re going to be discussing one of the first steps in the journey. This consists of working out how much you can borrow and establishing your budget within your salary.
How is it calculated?
Mortgages are offered based on your affordability. This is a combination of your current outgoings (loans, cars, credit cards, dependants, childcare, student loans) and your taxable income. For an employed person that’s the figure before your tax and NI deductions, often shown on the left of your payslip. But for self employed it’s your net profit figure. For more details on self employed see our detailed page on self employed income for mortgages here.
Lenders base the amount you can borrow on these affordability calculations, so each assessment is unique and based on your personal circumstances. There are some general rules, such as income multiple caps that some lenders use. This means you are unlikely to be able to borrow more than 5 times your salary, and on some of the housing schemes like shared ownership this can be restricted to 4.5 times your salary. In certain circumstances there are a few lenders who extend this maximum to 5.5 or even 6 times your salary. However these need to meet specific guidelines and rules to access these types of mortgages.
For example, if you were given an affordability check with an income cap of 4 times your salary and you earn £30,000 a year, you could be eligible to borrow up to £120,000. If the particular lender had an income cap of 5 times your salary this would be potentially higher at £150,000. The income caps are only part of the calculation though as lending is based as mentioned above on affordability first and foremost.
What can affect the number?
If you’ve had a look at a typical mortgage calculator, the number given can be very misleading. The amount provided could be very optimistic. This is because these calculators assume that you do not have any existing debts, and have a perfect credit score. Alternatively, the amount given could be much lower than we can actually access for you. This is because it also depends on the lender you use and each lender has different ways of calculating lending amounts.
The reality is that it’s very difficult without experience, to get an accurate figure from the online calculators. These calculators can only use the information that you give them. It will miss out on external factors such as debts, credit score, payslip deductions, child maintenance payments etc., which is why you should always seek advice from an advisor and expert broker!
What can you expect to get?
To find out exactly what you can get, we recommend getting started with an expert broker. Mortgage calculators are only used for an estimation, and the real total can be considerably different, depending on those external factors discussed earlier.
What happens next?
Get in touch with a mortgage broker to determine exactly what you can borrow. They will do an assessment and give you an accurate estimate – more accurate than what a mortgage calculator suggests.
From here you’ll be able to discuss your budget, and obtain a ‘mortgage in principle’. This states exactly how much a lender will give you, before you’ve finalised purchasing a property. Once you have the mortgage in principle, this is where the fun part starts and you can start viewing properties!
Every situation is unique. If you want to discuss your options with obtaining a mortgage, do not hesitate to get in touch.
