How Much Can I Borrow?

When you apply for a mortgage, most lenders will cap the loan-to-income ratio at 4.5 times your income.

Affordability Assessment

When working out how much you can afford to borrow, the lender will look at:

1. Your income

  • your basic income
  • income from your pension or investments
  • income in the form of child maintenance and financial support from ex-spouses
  • any other earnings  – e.g. overtime, commission or bonus payments or a second job or freelance work.

Evidence of your income include pay slips and bank statements

If you’re self-employed you’ll need to provide:

  • bank statements
  • business accounts
  • details of the income tax you’ve paid

 

2. Your outgoings

Check your credit report before applying for a mortgage.

This will give you time to correct any mistakes in it and will notify you of any missed credit payments that could make the mortgage lender turn you down.

Any financial commitments such as student loan payments from your payslips (and the outstanding amount) along with credit cards, these will need to be confirmed in order to give you a more accurate borrowing figure.

  • credit card repayments
  • maintenance payments
  • insurance - building, contents, travel, pet, life, etc
  • any other loans or credit agreements you might have
  • bills such as water, gas, electricity, phone, broadband.

The lender might ask for estimates of your living costs such as spending on clothes, basic recreation and childcare.

They might also ask to see some recent bank statements to back up the figures you supply.

 

3. Future changes that might make an impact

The lender will assess whether you’d be able to pay your mortgage if:

  • interest rates increased
  • you or your partner lost their job
  • you couldn’t work because of illness
  • your life changed, such as having a baby or a career break.

It’s important that you also think ahead and plan how you’d meet your payments.

For example, you can help to protect yourself against unexpected drops in income by building up savings when you can.

Remortgage

Remortgaging can be a good idea if you want to avoid the standard variable rate, borrow more money, or pay off your mortgage quicker. It involves switching your mortgage debt to a new lender. You can save money if your new rates are cheaper than your old rates after any fees.

What is remortgaging?

Remortgaging is the process of repaying an existing mortgage debt with a new mortgage. This is typically done to save money with a lower interest rate, or to raise money by borrowing against equity.

Why do people remortgage?

There are many good reasons to look into remortgaging. The two most popular reasons why people choose to remortgage are:

  • To save money- in order to lower monthly repayments or benefit from lower interest rates. More than half of all borrowers in the UK are currently paying more than they need to on their mortgage.
  • To raise money - to release some of the equity in your home. This could be useful if you wanted to consolidate debts or release money for making home improvements (and adding value to your property). 

Many clients who already have a mortgage tend to look at remortgage deals. After the initial fixed rate, your mortgage may revert to a higher rate of interest, meaning you will have to pay more each month. At First Class we contact clients before the fixed rate ends to enable them to either stay with their existing lender with a product transfer or remortgage so homeowners switch to a better deal with a different mortgage provider.

Who can remortgage?

Anyone who has an existing mortgage can look into remortgaging with us - provided that they meet the criteria set by their potential new mortgage lender. Remortgaging might be particularly important if you’ve come to the end of a fixed-rate period, or your discounted deal is coming to an end. While you can stay with your existing mortgage provider, you will probably be put on their standard variable rate (SVR) which may not be the cheapest deal around. In many cases, remortgaging can make a big impact on your monthly outgoings - for example, £75,000 mortgage with a 15 year repayment mortgage from 5.5% to 3.5% you could save £76 a month.

When is a good time to remortgage?

When the deal you’re currently on comes to an end you may have to make much higher repayments. It’s therefore best to start looking at other offers just before your deal comes to an end, so that you can make a smooth transition to a new deal. You may need to watch out for a mortgage exit fee, which is a penalty for leaving your current mortgage deal early. Sometimes a remortgaging deal can make up for the early exit penalty, but it’s worth calculating how much you would have to pay over the remainder of your mortgage if you stay in your current deal versus switching to a remortgage deal.

How long does remortgaging take?

Remortgaging usually takes about a month, as we complete all the paperwork and have a valuation of your home conducted. When the process is complete you’ll be notified with a completion statement.

How do I find the right remortgage deal?

Contact us and we will help you identify which product is best suited to your needs. Please tell us:

  • the estimated value of your home;
  • the percentage of the value of the property you want to borrow (the LTV ratio);
  • your annual income and the income of anyone else who will be named on the mortgage;

It is also useful to get a ‘redemption statement’ from your existing lender, which will tell you exactly how much you owe. These factors are important to figure out what you need to remortgage for: saving money or releasing equity.

We will also discuss with you which type of mortgage you would like to meet your needs and objectives:

  • Fixed rate mortgages - with a fixed-rate mortgage the interest rate is fixed for a set period of time, usually between 2 and 5 years. Fixed rate mortgages are good if you want the security of knowing what your monthly repayments will be, but homeowners will not benefit from any potential drop in interest rates.
  • Tracker mortgages - with a tracker mortgage your mortgage rate is set at a percentage above the Bank of England’s base rate or your lender’s standard variable rate, so if interest rates go up or down your mortgage repayments will too.
  • Offset mortgages - with an offset mortgage, your mortgage and savings account are combined, and the money you have in your savings account is counted as a temporary overpayment towards your mortgage, which could save you thousands in interest. As with a standard mortgage, you can get discounted, fixed and tracker offset mortgages.

 

Self Employed

This myth-busting guide to self-employed mortgages explains how you can still get a mortgage if you're self employed.

We have access to a range of mortgages for the self employed and identify what you’ll need to pass the lender’s affordability tests in the same way as any other borrower.

 

 

What will I need to provide for a self-employed mortgage?

To prove your income when you apply for a self-employed mortgage, you will need to provide:

  • One, two or more years’ certified accounts
  • SA302 forms or a tax year overview (from HMRC) for the past two or three years
  • Evidence of upcoming contracts (if you’re a contractor)
  • Evidence of dividend payments or retained profits (if you’re a company director)

Lenders also prefer self-employed mortgage applicants to provide accounts that have been prepared by a qualified, chartered accountant; that way they can be sure of your reliability. It’s likely that they will focus on the average profit you’ve earned over the past few years.

If you only have accounts for one year or even less some lenders will still be able to help and potentially use the latest years figures exclusively (rather than an average) for affordability assessment. This is particularly useful for applicants where their first year was low due to setting the business up initially. 

How to boost your mortgage chances

There are a number of steps you can take to increase your chances of being accepted for a mortgage when self-employed, such as:

  • Save as much as you can for a deposit
  • Correct any mistakes on your credit report
  • Get on the electoral roll

Help To Buy

With a Help to Buy Equity Loan the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. You won’t be charged loan fees on the 20% loan for the first five years of owning your home. Here is an example:

  • Property asking price: £270,000
  • Mortgage: £202,500
  • Deposit: £13,500
  • Government Loan: £54,000

 

You will not have to repay the government loan until you sell the property. In addition, you won’t have to begin paying the interest on the government loan until after 5 years. The rate is 1.75% and increases every year after that in line with the Retail Prices Index – RPI – inflation rate, plus 1%. Here at First Class we will take care of the 75% loan - to apply for the 20% government loan please click here: https://www.helptobuy.gov.uk/equity-loan/how-to-apply-equity-loan/

When you come to sell the property, as it’s an equity loan - rather than a flat amount - you will have to pay the government back 20% of your home’s value at that point. This is the case whether the value has risen or fallen. You can repay the equity loan at any time before this though, without penalty.

As a first time buyer you also benefit from not be charged stamp duty which will save you upfront costs.

Please note the lending criteria is based on affordability assessment and may vary with each applicant. 

Contact Us

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We'll outline the options that best fit your needs and explain all the documents and information your new lender will need to give you the right deal. 

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