Can I afford to get on the property ladder?
A mortgage lender will decide whether you can afford a mortgage or not, and there’s more to it than just the size of your salary. Here are the kinds of things a lender will consider when they assess what you can afford.
Income and outgoings
A big salary isn’t a guarantee of a mortgage. You could be earning £100,000 a year and ending up with hardly any disposable income each month after your outgoings eat up your wages.
A lender will weigh up your income – that’s your salary and any other money you have coming in – against your regular monthly commitments. This includes things like rent, loan payments, phone contracts, insurance and more.
They’ll want to see that you consistently have enough left each month to pay a potential mortgage bill, ideally with some breathing room.
And they won’t just take your word for it. Many lenders will want to look at three months’ worth of your bank statements to verify what you earn and spend.
Lenders look at your credit history to see how you’ve handled borrowing in the past. They want to see that you consistently repay your debts on time. Your credit score gives them a good indication.
Your credit score is damaged by things like late or missed payments, defaults, bankruptcy, County Court Judgements (CCJs) and so on. The better your credit rating, the better your chances of getting a mortgage, but there are specialist mortgage products for people with bad credit.
Also, if you’ve never borrowed before then you’ll have limited or no credit history, which makes it harder for lenders to assess your creditworthiness.
You can check your own credit file online with a credit agency like Experian, Equifax and ClearScore.
Your employment status
Lenders will ask where you work and how you’re employed to understand how stable your income is going to be.
For example, they’ll want to know if you work full or part-time, if you’re permanent or temporary, whether you’ve just started the job or been there for a while. If your job is new, that could be a problem – particularly if you’re on probation for the first few months of the role.
Your age and family
Your age determines how many working years you have left in you, which is important to lenders because they need to know your income is going to keep coming for as long as you have the mortgage. If you’re too close to retirement you may not get a mortgage.
They’ll also look at your family circumstance to see if there’s anyone who’s financially dependent on you. Don’t be surprised if you’re asked if you’re considering starting a family any time soon – it’s something the lender will factor in to its assessment.
Loan to Value
One of the big things makes a mortgage affordable or not is the amount of money you’re borrowing compared to the value of the property you’re buying.
Lenders expect a deposit worth at least 5% of the property’s value (e.g. £10,000 on a £200,000 property). After you’ve chipped in your deposit, the mortgage provider will lend you the rest. Generally speaking, 95% of the property value is the maximum they’ll lend you.
That percentage lent to you is your Loan to Value (LTV) ratio. A lower LTV typically means access to lower mortgage rates and lower, more affordable monthly repayments.
How a broker can help
A broker can recommend mortgage products you’re likely to be approved for before you apply, so there’s less risk of being rejected and leaving a record on your credit history.
At Mojo we can give you a personal mortgage recommendation online in 15 minutes. Then, when you’re ready to apply, we’ll handle the entire application for you until you complete. Visit our Mortgage Matcher to get started.