Mortgages in later life - size matters!Posted on: 20 February 2013 by Ronan Marrion
High street lenders don't always offer best option for your house-buying needs.
No off-colour jokes, we promise! We're talking mortgages this week - more specifically, how much you can borrow with a mortgage. When it comes to a mortgage, size can make a big difference. How much you want to borrow is one of the crucial factors in determining how your mortgage application proceeds. That might seem fairly obvious, but in fact, the size of your borrowing is something that can cause some unexpected complications.
For a start, there is size and then there is relative size. The traditional, uncomplicated rule of acceptable borrowing being 3.5 times your income has not exactly been consigned to the waste bin, but it's certainly been superseded by other measures, including affordability calculations.
This can lead to the apparent oddity of someone with a £50,000 salary being allowed a smaller amount of borrowing than someone with a £35,000 salary. Most lenders these days will use an affordability calculator to determine how much they are prepared to lend you, meaning that they will calculate how much income you have against your outgoings, including any dependents you have and your financial commitments. The more dependents (such as young children) and commitments you have, the smaller the amount you will be able to borrow. Why? Because lenders will consider that even though you might have a bigger income than someone with no children, you have less disposable income available to meet mortgage payments.
Another critical factor is how you receive your income. Not everyone receives a straightforward salary from an employer - many of us are self-employed, run a business, or receive income in the form of a salary and bonuses. One month's pay might be quite different from the next month's. This is where things can get very complex, particularly when you want to take out a larger mortgage. As a guide, we use the figure of £300,000 and above as the definition of a high-value mortgage.
It's fair to say that most high street lenders are not used to dealing with mortgages in excess of that figure. They are also not used to dealing with unconventional incomes. It's been our experience that they often continue with the normal rigid screening process that is not always appropriate to a large mortgage applicant. Before coming to us, many of our clients who are looking to take out a large mortgage, have had difficulties with High Street lenders assessing their income. Problems arise particularly for clients who have several income streams as mentioned above, or if they take only a small income from a business, but have substantial assets within their business or elsewhere.
The solution is to think outside the box - and away from the High Street. Large mortgages are a fairly specialist market, so you need a specialist solution. Step forward an independent mortgage broker. Independent mortgage brokers are not tied to just High Street Lenders, they can go across the marketplace - to private banks, for example, and match you up with a lender to suit your circumstances. A private bank is usually more ready to take into account non-standard income streams and assets that you hold. We subscribe firmly to the belief that one size definitely doesn't fit all, particularly when it comes to your mortgage.
As we've said before, taking out a mortgage, particularly a high-value mortgage, is likely to be one of the most important financial decisions you make in your lifetime. Remember that it's your money, your mortgage, your home - make sure you give yourself the best chance of finding the perfect fit for all three, whatever size they are.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loan secured on it.
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