Mortgage affordability application

nicole19922

H,


I just wanted a bit of advice in terms of what mortgage lenders look for when they do the affordability checks - I have an arranged overdraft of £50, and I have gone into that for the last two months. Never gone beyond my limit. Will that be detrimental to my ability to get a mortgage?

Thanks!

Guest101

No, but do you have credit elsewhere?

dc197

They want to add up all your regular outgoings and incomings and see if you can afford the mortgages.
They want to know about regular recurring commitments. They want explanations for regular outgoings which they don't recognise.
One-offs, they're not too fussed over.

For example: they wanted to know what my standing order to my employer was for, but were not concerend about my wife's one-off £10 debit card purchase of a lottery ticket.

If my wife had a regular £200/300/400 monthly subscriptions to gambling, it might be different.

nicole19922

Well when we've bought a house £400 of our income will be freed back up as we currently save that and more into the HTB ISA.

I do have a personal loan from Natwest which I am paying off regularly and again, never missed a payment.

I do have almost a full credit score so I suppose that could go in my favour?

All my other regular outgoings are household bills, apart from one payment to Spotify.

kinger101

Presumably you have a deposit? It's only a small overdraft so the margin of going into it, and going beyond it, is quite small. You're propbably only one direct debit away from exceeding it. Transfer some money into your current account to give yourself a better cushion.

While using an agreed overdraft probably isn't a problem as it's agreed credit, the fact you have used it twice recently brings up the question of whether you'd be able to afford repayments if the interest rate increased.

marksoton

You need an independent whole of market broker.

kingstreet

A typical lender affordability calculator looks for;-

basic/guaranteed income
variable/unguaranteed income.

It will usually take 100% of the first and 50% of the second, if the second can be evidenced over a set period (eg three months for overtime, two years for annual bonus, using the average of each.)

Then, dependents and mortgage term come into play. More dependents, the lower the borrowing power, the longer the term (and don't go past retirement) the higher the borrowing power.

Finally, outgoings.

Many lenders use assumed outgoings for the size of the household from ONS (that's the Office of National Statistics for the anally retentive).

They only want you to input;-

card debt
HP/loan monthly payments
Maintenance payments
Childcare costs
ground rent & service charges
Season ticket/student loans visible on payslips

as the rest is assumed in advance.

Now, this is not how every lender operates, but a sufficient number do it this way to make it sufficiently reliable as a measure.

Add your deposit at the end and hey presto, you have your maximum purchase price.

If you want to work on what's comfortable, rather than what's maximum, use £7 per £1,000 per month. This means that if you would be happy paying £700 per month, you divide £700 by £7 and that means you will be comfortable with a £100,000 mortgage.

This allows for future rate increases as the current rate per £1,000 is about £5.