Mortgage Affordability

July 07, 2011

Mortgage Affordability
By Chris Morgan

What amount can you borrow on a mortgage?

Chris Morgan, Marketing Manager

 We have recently been looking after a couple who are over committed on their existing mortgage. Everything was going fine for Wade and Lenny with their mortgage payments until they received a letter from the Inland Revenue, demanding an immediate payment of £48,000. 

Wade changed employers around three years ago and at the time his tax code was entered wrongly on his pay slip. This unwelcome development led to them being in danger of defaulting on their £800,000 mortgage and they have decided to sell their current property.

Wade Said ...

‘It was all quite a shock really, because we were happily paying our mortgage payments and then suddenly we were placed in an impossible position. I feel that I should have noticed such a big error on my payslips, but I didn’t realise until it was all too late.’

Lenny Continued...

‘The Inland Revenue problem has affected us in a number of ways. Not only have we got to find such a large lump sum, but also Wade’s net salary has been reduced by over £1,500 per month, affecting our ability to meet our regular mortgage payments’.

Mortgage providers assess your incomings and outgoings when you apply for a mortgage, so if your circumstances change dramatically it would be sensible to review your mortgage. Criteria for agreeing mortgage’s has completely changed over the last three years due to the ‘Credit Crunch’.

Here’s some advice for those looking to take mortgage finance.

When sanctioning a mortgage, lenders will look at your payslips if you are an employee and your accounts / tax returns if you are self employed. The majority of mortgages these days require you to prove your income before agreeing a mortgage.

Instead of using  the traditional set income multipliers (Three or Four times income), nearly all mortgage lenders have adopted an ‘Income Affordability’ calculation. This is a unique calculation for each customer and includes your incomings and all of your outgoings.

Lenders are asking for more details than they did prior to the credit crunch and are being more selective as to whom they offer mortgages. It’s fair to say that many mortgages that were agreed under ‘Self Certification’ lending would not be offered again today in today’s climate.

And Wade & Lenny?

We approached their existing mortgage lender and organised a temporary reduction in their monthly payments in order to avoid any arrears on their existing mortgage. We then helped them to find a mortgage for £400,000, which was within mortgage lender’s current affordability calculations.

It’s better to restructure your mortgage than to try and meet impossible payments.

Chris Morgan is a freelance journalist and qualified Independent Financial Adviser. He is the Marketing Manager of Compass, The Gay Mortgage and Insurance Advisers and can be contacted by phone 0845 474 3075 By Email enquiries@compassindependent.co.uk or by web www.compassindependent.co.uk