In recent weeks I have noticed a significant increase in the number of enquiries for Mortgage Capacity Assessments by individuals who are in no position to obtain mortgage lending. Whilst many of these individuals were already aware of their situation and were simply carrying out an exercise to pacify Court proceedings, it did come as a surprise for some.
There are many tell-tale signs of having the kind of financial circumstances which may not allow you to borrow from a mortgage lender and I will highlight some examples of these below:
Bankruptcy – Many lenders will not consider an application for mortgage lending from an individual who has ever been declared bankrupt and it may not matter how much time has passed since the bankruptcy. Many lenders are happy to consider an application once the individual has been discharged from bankruptcy for more than 6 years but even then obtaining lending may not be a straight forward process.
High Outgoings – Often confused with high debt, most of us are aware that a lot of debt; including credit cards, loans and hire purchase, will have an effect on an individual’s ability to obtain a mortgage, however, general outgoings are also a defining factor. These may include hefty travel costs, child care, maintenance costs and tuition/school fees. For example, an individual earning £30,000.00 per year with childcare costs of £9,000.00 and a credit card balance of £10,000.00 is not in a healthy position to obtain mortgage lending. Since the Mortgage Market Review in 2014 mortgage lenders focus on month to month affordability rather than overall indebtedness and if general outgoings are high this is going to impact capacity to mortgage.
Deductions from Salary – Often overlooked, deductions from salary, including pension contributions, share save and employee benefits, are not always considered as a potential issue regarding mortgage borrowing. However, any reduction in salary is going to affect monthly income and therefore reduce the amount an individual can borrow.
Pension Share – Obtaining mortgage lending that will continue into retirement is not always an easy task. Depending on the proximity to retirement age, many lenders may calculate maximum borrowing taking into account pension income only, therefore, the effects of pension sharing should never be overlooked. Not only will it reduce the amount available as a Tax Free Lump Sum but it will reduce the amount of pension paid monthly/annually further diminishing the affordability of any potential mortgage lending.
There are many factors involved when calculating and considering how much an individual is able to borrow. Where divorce is an issue Mortgage Capacity Assessments can help provide in-depth information regarding an individual’s likely borrowing capabilities and details of specific lending criteria.