affordability calculation question

kingkano

Hi guys. Hope somebody can help. My query is with regards affordability calculating. Long story short, we have an 11k personal loan balance @ 250pm. We had an AIP late last year for 190k but our FA said the loan would have been affecting that offer. HE couldn't say what difference would be but he thought it'd be substantially more than the loan value (ie clear the loan thereby getting more mortgage). We would clear the loan with profits from sale of our flat.

Has anybody any idea, even remote, what kind of difference clearing that loan would make to a mortgage offer?? (that offer was from northern rock if its any difference). Coupled to that, if your paying off that finance with profits, does the mortgage company check you've cleared that loan or do they take you on your word?

Oh 1 other question, how long does a northern rock AIP last? I had assumed it had expired by now (from nov last year) so didnt chase the certificate...

thanks in advance.

Mr_helpful

Usual effect of loan is to take monthly payments for year ie month X 12 and subtract that figure from your gross earnings example 25K income loan £200 per month. 200 X 12 =2400. 25000 - 2400 =22600. This figure is then subject to the income multiple say 4X so max borrowing in this case = 4 X 22600 = 90400 without the loan 4 X 25000 = 100000.
Credit cards are treated differently plus the income multiple often varies with your income so higher earning = higher multiple.
Not sure with NR AIP but its probably about 3 mths no longer than 6.

herbiesjp

NR AIPs are valid for 3 months

The loan would affect your income in the following way:

NR would annualise the monthly loan payments and the deduct that figure from your income before using their income multiples

So, £250pm*12 = £3000.

This £3000 will then be deducted from your income, and then the income multiple applied.

It is difficult to give you any indication, as to how it will afect you, as you have not posted what mortgage amounts you are looking for, and what your incomes are. Also, on the NR AIP it will state what credit score you achieved last time, which will indicate what income multiples would be used by NR - so you may still want to get a copy of this.

Your score may have gone up or down since last November, but it will give an indication

HTH

kingkano

Thanks to you both! Easy enough now I know.

We are looking at a stretch to be fair, as we would prefer to get a house we can be comfortable in for atleast 10yrs whatever happens to property values now. We will have around a 40k deposit and want to spend upto 250, so the AIP wasnt far off. Since we are looking at around 4/5x income then clearing the loan would indeed make a difference to the offer (not quite as drastic as I thought though). (our combined income is 46.5k altho I hope to have a raise through before applying).

Would I be right in assuming on our income 5x is the absolute maximum anyone would lend?

The NR AIP was done on our current income with the loan in place, and came out at 190 which I think is about 4.5x. I will talk to the FA again though and see if he can get hold of that AIP. The original application was referred but was agreed the next day (he wasnt sure exactly why) but then because of things that happened we never chased him for the AIP, and he says as it was referred it didnt come thru on his system. SHould he still be able to obtain this even though its expired?

kingkano

Anybody? My potential raise is 1-2k.

DOes anybody ever lend over 5x if the repayments are affordable (perhaps a part and part mortgage)??

Mr_helpful

You may get slightly more but dont you want a life in addition to your mortgage?

kingkano

Mr_helpful wrote: »

You may get slightly more but dont you want a life in addition to your mortgage?

it would only be tricky for 1 year actually. my wife is in a quick progress career where she gets atleast 3-4k raise each year. Of course nothing is guaranteed.

I think Id be willing to sacrifice 1 year of nights out and takeaways if it meant we probably dont need to move again (at the very least 15 years or so). The extra really would make that difference....

herbiesjp

Have you gone back to your broker and asked what you could get on a 5 year fixed rate? NR can increase the mortgage amount offered if you take a longer fix.

NRs rates are changing as of close of business on Thursday

kingkano

cheers. I have gone back to my broker and asked him to crunch the numbers and see what he can come up with. I was just getting some 2nd opinions here really

I was wondering about the fixed rates, having looked through my magazine and did a few comparison sites, the longer fixed rates seem to be what comes up on offer. Are the banks more willing to take a slightly higher risk in exchange for a longer 'contract' so to speak?