Income multiples in the mortgage market are coming to an end which is good news for borrowers.
Usually, you will go to a mortgage broker who will search the mortgage market for the best deal for you and your particular circumstances. They will then work out what you can borrow, which is usually something like 3.5 x your income/salary. So for example, a guy earning £30k a year could borrow approx. £105k. However, any regular monthly expenditure would have to come out of this figure.
So, say he pays his minimum payment of £200 a month to a credit card company, the mortgage lender will have to deduct this off his £105k borrowing mentioned earlier. Which equates to:
£200 a month x 12 months = £2,400k. So the lender will take this amount off his £30k a year salary which now equates to £27,600 a year. Now multiply this by 3.5 and you now get a a new borrowing figure of £96,600! Suddenly our friend now has a shortfall of £8,400 compared to his original borrowing figure.
As you can see from this example, income multiples do not work any more and all lenders are now developing borrowing models based on the element of affordability without ever looking at income multiples.
So when you are looking to place your clients mortgage or you are looking for a mortgage yourself, ask your broker this question: Which lender offers the more versatile, affordability calculation?
Anthony Harrison owns http://www.capitalmortgagesolutions.co.ukwhich specialises in providing mortgages and mortgage advice to clients suffering from credit problems.
