Are you a budding First Time Buyer in Liverpool? Maybe you haven’t thought about Moving House for quite a while? In either of these cases you are probably asking yourself one of, or both of the following questions; “Can I get a mortgage in my situation?” and “How much can I borrow?”. These are two questions we hear regularly when providing mortgage advice in Liverpool. In this article, we explain the latter, something that over the last 10 years has changed quite a bit.
If we look back at the ’80s and ’90s, most mortgage applications were underwritten manually. This means there was lots of “human intervention” in the mortgage application approving process. You’d make an appointment with your local building society manager, and he or she would interview you about your circumstances.
They would encourage you to save with them for a while until you prove yourself to be good enough to handle credit. The manager would then grant you what was the equivalent of today’s Agreement in Principle. Following this you would receive mortgage advice and an estimation of how much they would be able to lend you.
At face value, this sounds very much like a highly personalised process with a common-sense approach. That being said, it could often lead to inconsistent decision-making. The manager had the discretion to interpret the lending manual as they saw fit. What this means is that you could possibly approach the same Building Society in a different town or city and the result would come out different.
To make sure things like this stopped happening and more importantly, to cut costs, lenders moved to automated affordability calculations. “Caps” were applied so they would lend you more than, say, 3 or 4 times your standard household income.
As the 2000s went onwards, lenders were becoming more and more generous in the amount they would lend customers. Some lenders would even offer self-certified mortgages, meaning no background checks were taken so they were taking the applicants word on how much they were earning!
Such practices of course failed, and the market crashed. 2008-2010 were very difficult years if you were trying to get on the property ladder, as the market was in a poor state. Lenders stopped lending for the time being and created a very cautious (over-corrected) lending environment.
The market eventually (and thankfully) recovered, and in 2014 the regulator launched the Mortgage Market Review (MMR). This was a brand new set of rules for lenders to follow. The old-style income multipliers which took little account of household expenditure were now gone.
Before 2014, two applicants earning the same could borrow roughly the same as each other, regardless of the little details and differences, including how much they spent each month. Then came brand new affordability models. These took a much more forensic view of how mortgage applicants managed their money on a monthly basis.
There is still a “cap” in place (most lenders will not go past 4.75 times your annual income) but your spending habits are also analysed more harshly. So, for example, if you have high childcare costs, lots of credit commitments and a student loan, it is likely you will be offered less than your work-colleague who doesn’t have any of these things to pay for.
We still find ourselves regularly surprised by the large variances lender to lender in how much or little they will lend customers. Some lenders seem to penalise low-earners (they may only want one type of applicant) and some take pension contributions as a fixed outgoing, so would often lend the likes public sector worker with a big pension deduction less than a private sector.
If you need to maximise your borrowing capacity to obtain the home you need to buy then you’ll need the help of a trusted and experienced Mortgage Broker in Liverpool on your side. Our advisors are able to research the market on your behalf to see if anyone will lend you the amount you need.
Before you take out a mortgage you should sit down with a Mortgage Advisor in Liverpool and work out your finances together to ensure that the repayments are to the level you were expecting.
Here at Liverpoolmoneyman, we offer a free initial mortgage consultation for all customers. Contact us and we’ll get you booked in as soon as possible.