How do I maximise my mortgage?
One of the first questions I get asked by a new client looking for a mortgage is, what’s the maximum amount of money I can get as a mortgage?
It makes sense. Most people have a good idea of how much money they have in savings as a deposit, but they don’t know how much they can borrow from a lender – therefore they don’t know what price house to go looking for.
Well let’s take a look at how you can get a rough guide on what you can get, and how you can maximise that mortgage.
Now it would make me a bad person, as well as an incompetent mortgage adviser if I didn’t mention that really the question you should be asking is…
“What’s the biggest mortgage I can afford?”
Let’s say I could get you a £4 million mortgage tomorrow. Great! You can go buy a penthouse overlooking Midsummer Common, or a 4-storey townhouse on Brunswick Square… but what are you going to do in a months’ time when the lender asks you for £19,000?
So yeah… maybe keep in mind what you can realistically afford each month as well as how you can get that massive mortgage.
Just a thought. On to how to get the most mortgage you can.
How Lenders Assess Affordability
Each lender will have a slightly different method of calculating affordability, so there isn’t a universal answer here. Working with an experienced adviser will help as they will know what lenders take what into account.
But as a general guide, you can expect to be in the region of 4.5x – 5x your annual income. Or your combined annual income if you’re applying for a joint mortgage.
This might be higher for some professions and with some lenders, but it’s a good ballpark to work off initially.
What Income Will They Consider?
If you’re employed, then your base salary is a given. You might also have guaranteed bonuses or overtime, which some lenders will take into account while others will only take say 50% of the figure into consideration.
Car allowances, pension contributions, etc. vary by lender.
This is where it can get a bit more fun. Lenders will usually look at ‘Directors Remuneration’, which could be made up of a salary plus dividends.
Some will consider the Net Profit of the company as well, as in theory you could have taken this as dividend income if you wanted.
The majority will want to see 3 years’ worth of accounts, but there are lenders out there that will look at just 2 or even 1 year. However, something to keep in mind is that if there is a big jump in salary from one year to the next, the lenders will often take an average of the income. This can have a huge impact on the income the lender uses to calculate what you can afford!
If you’re self employed it’s best to think far in advance for when you’re looking for a mortgage. Often the accountants’ job of minimising tax is the exact opposite of what you need to maximise your mortgage.
There may be other sources of income you have. Investment income, interest on savings, rental from property, child maintenance from a partner, disability living allowance, carers allowance.
These sources of income will be treated differently by different lenders, but it is worth knowing that there are lenders out there that will consider these for affordability purposes.
So if you don’t earn a great deal because you have to take care of someone, and receive child maintenance from your former partner… don’t assume you can’t get any mortgage. It may not be the £4 million we were talking about, but it could well still be enough to buy yourself a home.
This is where a decent mortgage adviser can be the difference between living in rented for the rest of your life or owning a place all of your own.
The lenders don’t want to see that you’re up to your eyeballs in debts. Having some debt, and a proven track record of managing your finances is a good thing. Gives you a good credit rating.
But being at 70%+ of your credit limit on multiple cards and overdrafts sends a bad signal.
If someone asked you for money and you knew they owed loads of other people money as well… would you want to lend to them? You’d have a good think, wouldn’t you?
Lenders will take into consideration what other debts you have, and how much it costs you to pay these debts. This will impact the amount of money they are willing to lend.
So if you can, it’s best to get rid of any major loans or big credit card balances you have.
This is by no means an exhaustive list of things you can do or things to keep in mind when looking to maximise your mortgage.
If you want a bigger mortgage, then the simplest way is to have a bigger income.
But when that’s not possible, or not possible in the short term at least, then maximising your mortgage options becomes vital.
You can do this by minimising any other committed expenses you’ve got and using every possible source of income you have to prove to lenders you can genuinely afford the mortgage you’re looking for.
If you need any further explanation or want to talk about how I can help you get a mortgage, get in touch here.