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How Lenders Calculate Your Max Loan 

 October 9, 2020

By  Michael

Lenders Affordability Calculations

One of the first things I'm often asked is "how much can we borrow?" and as a broker it's one of the first things I would help my clients work out.


Using special industry software your adviser can search 80+ banks to work out the maximum each one is likely to lend. 


For those of you who don't have time to research each banks policy and would like a quick personal answer to this question simply - Ask for an affordability check


"What is the most I can borrow?" is an important question that needs an answer. After all you don't want to waste time viewing houses which are vastly above what a bank will lend. 


Its important you understand that each bank has there own rules and calculations for determining how much they will lend, therefore there is no quick answer to this question without understanding your individual circumstances. Each bank normally has a form know as their affordability calculator which produces a figure based on your circumstances


Calculating how much you can borrow is really a job for you broker who is able to take your individual circumstances and using clever software carry out affordability calculations with over 80 different banks.  


What effects your affordability ?


Here are some common factors which may increase and decrease how much a bank is willing to lend. 



Increases Lending

  • The amount of your salary or if you are self employed the figures from your tax calculation
  • Overtime and bonus payments (each lender treats these payments differently)
  • Income from benefits (some lenders allow this some do not ) 
  • Income from rental property, investments and pensions

Decreases Lending 

  • Committed expenditure such as loans or credit cards
  • Nursery fees or childcare costs
  • Additional properties such as holiday homes and ex marital homes 
  • Payslip deductions for rail travel, pension contributions and student loans

As you have probably worked out by now, getting an accurate estimate of how much you can lend involves quite a bit of number crunching. 


This is something you can calculate yourself and each lender will give you an idea of how much they will lend. This will involve visiting each lenders website individually and entering your information, but with over 80 lenders in the market this could take you some time. 


The beauty of using a mortgage adviser is they can search multiple lenders for you. They can also help to ask the right type of questions that uncover income that you maybe did not think was relevant such as child tax credits or child benefit which some lenders will accept and increase their lending to someone in receipt of these. 


ConClusion

To get the most accurate figure of how much you can potentially lend you need to understand your own finances in detail. 


The most time efficient way of finding out how much you can borrow would be to sit down with a broker and have a holistic discussion about your finances. The broker will then use special software and their own experience to obtain an accurate affordability calculation with a max lend.


This valuable information allows you to view properties within your price range and removes a large amount of uncertainty from the home buying process. 

 



Michael


Hi I'm Michael a CeMAP qualified mortgage broker and property investor. Have a question I have not answered in this blog..then please get in touch

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