Do all mortgage lenders use the 4.5x salary or are they more flexible?

MaryNB

lookstraightahead said:

MaryNB said:

savefortherain said:

theoretica said:

savefortherain said:

SavingPennies_2 said:

£500 a month *is* a lot for a salary of 17000 once you deduct council tax, utilities, food, living costs etc. and that's before repairs, unexpected emergencies, savings.. The bank wants to know you can afford it and have wiggle room if your circumstances or the interest rates change, saying you will scrimp to get by or take a second job might work in reality but won't cut it with the bank.

It's not a lot, if a single person without dependents is not saving at least £200 a month then they need to use the moneysavingexpert tool. Even more if not running a car and using public transport.

Remember for people on the absolute minimum wage, their earnings can only go up. Promotions, second jobs, zero contract side hustles, money saving schemes, overtime, lodgers.

The whole 4.5x system seems designed to not just protect from reckless borrowing/lending but also prevent FTBs getting on the ladder.

But a single person without dependents can quite rapidly acquire a dependent - a risk the banks will need to calculate on average. 

If someone is saving £200 a month it will take a few years to get a decent deposit.  Save from 18 to 25 and have £16k or so deposit which is good.  But if still on minimum wage and hours at 25 after saving for several years that is something the bank might also want to take into account - if they haven't had promotions, overtime, second jobs by that stage it weakens the argument for the potential of their future higher earnings.

Last time I checked a dependent requires a partner, hence another income (though I suppose there could be situations where that isn't the case).

Extra income doesn't have to come from promotions. Do banks really care if you've had pay increases through promotions?

Halifax asked me about pay increases during affordability checks. I told them I was expecting a promotion before the end of the fixed term due to the nature of my career path. They were checking how easily I could afford my repayments after the fixed term if interest rates increase significantly by the time I have to remortgage.

Did you need to prove anything because surely anyone can say that? I don't see how it helps the bank make an informed decision.

I didn't have to prove anything but I was asked and I discussed the fact I'm aiming for chartership in the next couple of years and that pretty much guarantees me a promotion and payrise. 

I also mentioned I'm planning to get a lodger to help overpay and discussed my pension contributions. I said they were important to me but if for some reason I had difficulty paying my mortgage I'd put a pause on the contributions.

It was all part of the wider discussion on how I'd be able to afford repayments if the interest rates rose to the highest they've been in 20 years. 

lookstraightahead

MaryNB said:

lookstraightahead said:

MaryNB said:

savefortherain said:

theoretica said:

savefortherain said:

SavingPennies_2 said:

£500 a month *is* a lot for a salary of 17000 once you deduct council tax, utilities, food, living costs etc. and that's before repairs, unexpected emergencies, savings.. The bank wants to know you can afford it and have wiggle room if your circumstances or the interest rates change, saying you will scrimp to get by or take a second job might work in reality but won't cut it with the bank.

It's not a lot, if a single person without dependents is not saving at least £200 a month then they need to use the moneysavingexpert tool. Even more if not running a car and using public transport.

Remember for people on the absolute minimum wage, their earnings can only go up. Promotions, second jobs, zero contract side hustles, money saving schemes, overtime, lodgers.

The whole 4.5x system seems designed to not just protect from reckless borrowing/lending but also prevent FTBs getting on the ladder.

But a single person without dependents can quite rapidly acquire a dependent - a risk the banks will need to calculate on average. 

If someone is saving £200 a month it will take a few years to get a decent deposit.  Save from 18 to 25 and have £16k or so deposit which is good.  But if still on minimum wage and hours at 25 after saving for several years that is something the bank might also want to take into account - if they haven't had promotions, overtime, second jobs by that stage it weakens the argument for the potential of their future higher earnings.

Last time I checked a dependent requires a partner, hence another income (though I suppose there could be situations where that isn't the case).

Extra income doesn't have to come from promotions. Do banks really care if you've had pay increases through promotions?

Halifax asked me about pay increases during affordability checks. I told them I was expecting a promotion before the end of the fixed term due to the nature of my career path. They were checking how easily I could afford my repayments after the fixed term if interest rates increase significantly by the time I have to remortgage.

Did you need to prove anything because surely anyone can say that? I don't see how it helps the bank make an informed decision.

I didn't have to prove anything but I was asked and I discussed the fact I'm aiming for chartership in the next couple of years and that pretty much guarantees me a promotion and payrise. 

I also mentioned I'm planning to get a lodger to help overpay and discussed my pension contributions. I said they were important to me but if for some reason I had difficulty paying my mortgage I'd put a pause on the contributions.

It was all part of the wider discussion on how I'd be able to afford repayments if the interest rates rose to the highest they've been in 20 years. 

I agree it's good forward thinking for you personally but I can't see how the bank could use it in any way.

(I'm not questioning you personally it just seems strange that banks can make decisions based on something someone  might do in the future)

youth_leader

My daughter is self employed and wants to buy her first house next year, can anyone direct me to any information about this?  

lookstraightahead

youth_leader said:

My daughter is self employed and wants to buy her first house next year, can anyone direct me to any information about this?  

Have a look on the mortgage board - they're really helpful 

savefortherain

lookstraightahead said:

youth_leader said:

My daughter is self employed and wants to buy her first house next year, can anyone direct me to any information about this?  

Have a look on the mortgage board - they're really helpful 

I just noticed there was a dedicated mortgage board, probably should have posted it there, surprised it hasn't been moved yet.

Not seen a compelling argument to say that lenders aren't being overly cautious when it comes to low income applicants or FTBs. Maybe it's a government conspiracy to get someone to finally buy those dilapidated 50k refurb jobs in the north east that no one wants.

Newnoel

I got about 5 times salary when I last remortgaged 18 months ago, but I am on a reasonably high salary and a decent bonus or two should bring this multiple right down over the next couple of years.

[Deleted User]

Taking your figures and putting a rough idea of other costs for someone in my area to work out a very rough monthly budget.  

£500 mortgage
£120 ctax
£80 gas/elec
£30 water
£200 food
£150 travel
£20 home insurance
£40 tv and internet
£35 mobile and landline
£75 clothing 
£50 holidays
£50 contingency for repairs
£100 socialising and ad hoc spending

£1450 estimated expenditure

According to thesalarycalculator.co.uk a salary of £17500 gives a takehome pay of £1295.

Case doesnt even need to be stress tested to show as not affordable. Even if you disagree with some of the esitmated costs I wouldnt expect to see a comfortable surplus.   The fact a rental payment would be more is irrelevant. They arent giving you money to rent a place so average rental costs isnt considered in any way

savefortherain

That's too much expenditure for a single person on minimum wage though. One who wants to own their own home, at least.

And by current rules of 4.5x max, then you still wouldn't be able to afford the £400 per month either as there is a £55 deficit even then.

If your figures are true, then the current minimum wage is not enough for people to live on as rents are usually higher than mortgages.

Someone mentioned Northern Rock earlier, they were fools and incredibly reckless (NR, not the poster). I'm not advocating lenders just throw money around willy-nilly, but the 4.5x rule needs loosening for those who can pass affordability checks, it would particularly help FTBs.

Thrugelmir

savefortherain said:

Someone mentioned Northern Rock earlier, they were fools and incredibly reckless (NR, not the poster). I'm not advocating lenders just throw money around willy-nilly, but the 4.5x rule needs loosening for those who can pass affordability checks, it would particularly help FTBs.

At peak NR in 2007 were funding around 20% of all new mortgages. Likewise HBOS fell by the wayside. A review undertaken by Lloyds after the marger. Ascertained that around 35% of HBOS's lending was outside their risk parameters. Business they wouldn't have underwritten.

No co-incidence that the one lender who didn't join the party, HSBC. Who simply maintained the status quo. By default subsequently became the UK'sl argest mortgage lender. 

As interest rates rise. Then the need for affordability regulations will become very apparent. 

Crashy_Time

Thrugelmir said:

savefortherain said:

SavingPennies_2 said:

£500 a month *is* a lot for a salary of 17000 once you deduct council tax, utilities, food, living costs etc. and that's before repairs, unexpected emergencies, savings.. The bank wants to know you can afford it and have wiggle room if your circumstances or the interest rates change, saying you will scrimp to get by or take a second job might work in reality but won't cut it with the bank.

The whole 4.5x system seems designed to not just protect from reckless borrowing/lending but also prevent FTBs getting on the ladder.

Following the collapse of Northern Rock (and others). The mortgage market review was conducted and changes implemented. Not as simple as an income multiplier.  Lenders have constraints as to exposure. 

And yet the bubble is way bigger than it was back then....