Banks and building societies used to lend three times a single salary (or two and half times a joint salary) on a property mortgage. With the average house price in the UK now over £163K and the lessons learnt from the lending bonanza, lenders have had to rethink their criteria.
Each lender will have their own lending criteria; – the rules that the mortgage underwriters will follow when they assess a mortgage application. The lending criteria for each lender may be different, quite detailed and changed frequently. As well as salary, they now consider criteria like deposit size and monthly financial commitments (excluding rent or mortgage payments) when making their decisions:
Lenders traditionally aim to lend a specified multiple of gross income. In the past, this has been as much as five times earnings. These days most lenders pay more attention to affordability guidelines rather then income multiples.
Lenders like to see a contribution by the borrower as this shows ability to save.
This is the amount of the loan as a percentage of the value of the property. The lower the percentage the greater the contribution by the borrower so the more comfortable the lender will be to lend. Many of the very best interest rate deals are available where the LTV is 75% or less.
Lenders will look for monthly mortgage to be no more than a set percentage of your gross monthly income, – your income before tax and deductions. Normally, up to 35%.
Lenders will like to see a clean credit record and evidence of maintaining payments to any previous lenders and/or landlords.
Lenders will look to approach employers to confirm income and that a job is permanent. If you’re self-employed the lender will ask for references from an accountant.