Do you get overtime, commission or bonus and wanting to apply for a mortgage?
If yes to any of those, then this video is for you.
Hi if we haven’t met before, my name is Dan, I am a CeMAP qualified mortgage & protection adviser. This video is purely for educational purposes only, and should not be seen as advice or a recommendation to act and I must stress your home may be repossessed if you do not keep up with the repayments on the mortgage.
I wanted to create this video to help you, help yourself and help me if you choose to use me as your adviser.
I often speak to clients who compare their circumstances to friends and family and get frustrated when they’re unable to borrow as much as they’d like.
Or they’ve been using generic and/or lender affordability calculators online and getting the wrong results.
I’ll start off by saying, the majority of the time you use an online mortgage calculator you won’t get an accurate figure and if you watch this video to the end, you’ll understand why.
Customers don’t often know how to fill them out properly. Which is to be expected, why would you? It’s not your job to know.
Lenders take different amounts of overtime, commission and bonus, some take 100%, others 60% and some as little as 50%. So putting in the wrong figure will drastically change the true amount you can borrow.
The hardest thing to calculate with most lenders is overtime, commission and bonus.
That’ll be another reason why you may get less than someone else you know who recently took out a mortgage.
For example, during the pandemic, a lot of lenders have been looking at the last 2 years bonus and will ask for 2 years P60s to prove this.
If you receive a monthly bonus, overtime or commission, it needs to be consistent or the majority of lenders are going to ignore it, you may be fortunate in some circumstances and they’ll take an average.
The best thing you can do is approach a qualified mortgage adviser, such as myself with all your proof of income.
If you want to use comparison websites or lenders calculators yourself, then you need to check you’re understanding the lender’s criteria otherwise you’ll get the wrong results.
It’s not as simple as calculating if a lender will do 4 or 5 times your income. Some will go as high as 5x income, but there are often caveats such as you need to earn over a certain amount or not have any existing credit.
A rough rule of thumb is 4.5 times your income but again, not everyone can get this amount.
Lenders also can cap the borrowing depending on the amount of deposit you’re putting down. So the more deposit you’re putting down, the more they’ll lean towards lending you more.
Things that can have a big impact on how much you can borrow are:
Pension contributions – some lenders will ignore these, and do not let it affect how much they’ll lend to you, but others will deduct this from your disposable income.
Children can affect you, although if you’re able to claim Child Benefit and/or Child Tax Credit then this can help bridge the shortfall.
I’m not saying don’t have children as they actually can help you if a lender has their own internal credit scoring system, along with living at a property for a long period of time, being married etc. It shows stability.
It’s becoming increasingly common to buy cars with car finance, these payments often aren’t cheap. These can also affect you.
This is why it’s not as simple as taking your salary and multiplying it by 4 or 5 times.
What you can borrow depends on YOUR circumstances. I often hear people say “But my friend managed to get X amount”. You can’t and shouldn’t compare.
Firstly, your friend isn’t you, with identical personal & financial circumstances.
Secondly, lenders tinker with their affordability calculators regularly, so they can vary from 1 week to the next.
If you’re self-employed, I won’t lie, it’s a bit trickier if you’ve been affected by the pandemic.
Lenders are looking for consistent income and will trawl through as much as 12 months bank statements to check you’re not depending on Government grants and/or a bounce-back loan.
Some lenders will look at your salary plus dividends, others look at net profits and retained profits. So I recommend you speak to a qualified adviser, like myself and discuss this in greater detail.
I could talk about this subject for hours, but I won’t. Approach me if you need help with this.
Something else that is affecting a lot of people with their borrowing right now is their credit profile.
It is important to check your credit profile before applying. If you sign up to CheckMyFile using the link in the description you will be able to check your credit score and history on Equifax, Experian, TransUnion, and Crediva all with the 1 login, this is important because not all lenders use the same credit report, so you need to check you can see everything they’ll be able to see before applying, as different lenders, accept different levels of credit scores and credit history.
It is free for 30 days but if you wish to keep viewing your credit report after the 30 days, so you can keep an eye on your credit score and history, there is a monthly subscription cost of £14.99.
To avoid this, you could sign up to each of the credit reference agencies separately and utilise their 30 day free trials. If you did continue to use CheckMyFile after 30 days, I receive a £12 referral fee.
If you’re looking for tips on how to buy a home, watch this video.
Remember your home may be repossessed if you do not keep up with the repayments on your mortgage.
I’ll see you next week.