Homebuyers’ mortgage affordability is falling due to the increasing cost of living and inflation – but there are ways that prospective buyers can boost their chances of getting a mortgage accepted. That’s the message from Kate Burns, founder of Huddersfield-based mortgage firm KB Mortgage Services.
The statement comes as forecasters have said that Britain’s economy is at a growing risk of falling into a summer recession amid the biggest squeeze on household incomes since the mid 1950s, and soaring inflation is curtailing consumer spending power.
“People have less disposable income, so their monthly mortgage affordability may be reduced. If you are spending an extra £100 on bills, you may now only be able to afford a £400 mortgage repayment - which may have previously been £500, for example,” commented Kate. “This may affect your property search and you may need to adjust the properties you are looking at.
“Simultaneously, some lenders, such as HSBC, recently announced a 20% increase in the salary it requires before someone can get a loan of 4.75x their annual earnings. Someone will now need to earn £50k to be able to borrow that much - whereas it used to be £40k - otherwise they can only borrow 4.49x their annual earnings.”
“Home ownership is important for people’s future financial freedom but getting on the property ladder is becoming more difficult,” commented Kate. “Boosting your borrowing power is more important than ever.”
Kate says one of the best ways to do this is by paying off debts, as the more debt someone has, the less they will be able to borrow. Using an overdraft facility is fine but they don’t like people being too reliant on them. Mortgage lenders don’t like to see debt higher than earned income and some will look at the debt-to-income ratio.
“The better your credit rating, the keener lenders will be to lend to you. Make sure you are on the electoral roll; ensure that you pay utility bills on time and check your free credit report regularly.
“As well as looking at your credit rating and income, lenders will also assess the affordability and analyse how you spend your money. So, look at reducing your outgoings wherever possible and use a budget planner to give yourself a really clear idea of where your money goes to help you to recognise where you can make cutbacks. It sounds simple but it will prove to lenders that you have the ability to pay that bit more per month.”
Kate says it is also key to shop around, as different lenders have different attitudes and requirements for how much they will lend. Some lenders are looking at giving more lending on a longer fixed term, such as five years compared to two years.
“Joining forces with other people can significantly increase your mortgage power and there are a number of ways to do it, including getting a joint mortgage, using the joint borrower, sole proprietor option or using family savings in some instances.”
Kate Burns is the founder and director of mortgage advice and protection insurance firm, KB Mortgage Services.
