Affordability criteria - declined, help please

One_Fine_Day_2

Hoping someone can give me some tips...

On a monthly take-home income of £2900 (plus overtime) we've applied for a mortgage of £850 per month and have submitted our monthly expenditure sheet, showing we spend about £1900 per month including the new mortgage payment, unsecured debts, food, transport etc. They've declined it, saying it needs to be £1200 to meet their affordability criteria.

This is clearly barking as who on earth has only £350 to pay for EVERYTHING, and what on earth are they thinking I'll be doing with the 'spare' £1700 pounds I'd be left with each month? Flaming heck, I'd have saved up enough cash to buy the house outright at those rates.

Now due to past daftness with money (all settled but still not dropped off the page) this is our only viable mortgage company, so...

Can you re-submit your expenditure sheet with a few 'revisions'?
If I was to tell them that all unsecured loans would be paid off from the proceeds of our sale, thus removing about £500 per month straight away, would they take my word for it or would they be wanting proof?

It just seems crazy - we've done budget sheets til they're coming out of our ears and KNOW we can afford it, and their ruling just seems crazy.

Thanks in advance.

kunekune

Are you sure that you were meant to cost it based on the new mortgage? I've looked at some of those questionnaires and they are a bit ambiguous. Your take home is a bit bigger than mine, but we get extra through DLA, and if we were servicing a mortgage on my income alone I am pretty sure I could manage to keep up £1000 a month, although there wouldn't be luxuries in there. So it looks technically affordable to me (I could live without the wine, caviar and shopping, honest gov). Is the problem that you are relying on both incomes, so that there is some risk of it dropping? I would be nervous right now about taking out a mortgage that we couldnt handle on one income.

One_Fine_Day_2

Thanks Kunekune. I assumed the mortgage payment they asked about was for the new house, but who knows with some of the stupidity they're demonstrating...

My partner only works part-time since the birth of our child, bringing home £500 per month, so the bulk of the income is from me and, as I'm a teacher, I don't think there's any worries about me losing my job so I'd be surprised if that had been their rationale.

Conrad

It's difficult to know where you could tweak it, there are just too many variables. In this situation my clients would come back to me and ask for hands on guidance, for a small fee of course!

You suggest saying some debts will now be cleared, but as you suspect they are very likely to seek proof of such.

Sorry - not much help.

homer_j_3

Usually a lot of lenders will use a DTI ratio (Debt to Income). I know that as affordability criteria has tightened, it will be somewhere aroung 30-40 of your net pay.

So if your net pay is 2900 then you would be looking at 870 - 1160 a month for your mortgage payment and other debts. If they exceed this then you are likely to struggle. If you do overtime can be added normally at 50% of what you can demonstrate as receiving on a regular basis. If its written into your contract then you may use 100% of this normally - but it all depends on the lender.

It may well be worth considering using a professional as they will be able to see if you can truly afford it and find which lender will be most suitable to your circumstances.

One_Fine_Day_2

Thanks both for the advice.

The mortgage broker agrees with us, and our spreadsheets of ingoings and outgoings, that the mortgage is affordable, we're just waiting now to see whether the lender will take our word for it that debts will be paid, and tweak things like the monthly grocery bill.

andys15

just interested in how a teacher does overtime

minimike2

Marking Exams? After school activities?

One_Fine_Day_2

minimike2 wrote: »

Marking Exams? After school activities?

Indeed, as well as lunch duties and private tutoring. My partner also works extra hours when I'm off, doing full-time during the school holidays.

Gambit

homer_j wrote: »

Usually a lot of lenders will use a DTI ratio (Debt to Income). I know that as affordability criteria has tightened, it will be somewhere aroung 30-40 of your net pay.

So if your net pay is 2900 then you would be looking at 870 - 1160 a month for your mortgage payment and other debts.

I'm confused. I'm a first time buyer and just reading through this posts to try and inform myself but confused what what you wrote here homer_j. Does that mean that I can only 'afford' to pay a mortgage making up 30-40% of our combined take home pay in the eyes of lenders?

kunekune

That's quite a sensible rule of thumb, Gambit, though it also depends on the size of the income I would imagine. Where someone has a very low income, 30% is probably the most they should spend, and if it is high, then there might be enough 'spare' in there to make 40% a safe bet. You may think you can spend 50% of your income (or that you need to in order to afford a house), but it leaves you scarily exposed. What if the car breaks down? Or the roof needs emergency repairs? You can't insure against all risks, so it pays to be conservative when making long-term financial commitments.