With the Bank of England having scrapped an important mortgage affordability test in the wake of the cost-of-living-crisis, many potential homeowners may now be wondering how this will affect their chances of getting on the property ladder.
As house prices remain at an all time high, improving your affordability is a good way of increasing your chances of securing a mortgage, especially if you’re a first time buyer.
In this blog, we look at the most effective ways you can improve your affordability.
What is mortgage affordability?
At its most basic, mortgage affordability means you can repay the money the bank lends you to pay off your mortgage.
When they decide whether to give you a loan, banks run a series of mortgage affordability checks on you and your finances when you apply for a mortgage.
Mortgage affordability works in tandem with mortgage eligibility and is supported by mortgage underwriting – when lenders look at your finances in more detail.
Banks will mostly look at what the maximum it thinks it can afford to lend you and whether you can afford the mortgage repayments, based on your finances.
Improving your mortgage affordability
Passing mortgage affordability checks are crucial to getting a mortgage offer. Put simply, if the bank doesn’t think you can afford to make your repayments, it won’t lend you the money.
If you’ve been saving up for a deposit for months or years, there’s a good chance you’ll have enough space in your salary to cover the repayments. But if you’re living paycheck to paycheck, you’ll need to prepare your finances ahead of time.
There are multiple things you can do to improve your affordability in a lender’s eyes.
First, try to clear your debts and cut back on spending so you never get any more outstanding credit card payments. The more you can clear, the more you’re likely to be trusted to borrow.
Similarly, check your credit score – a good one is the biggest sign to mortgage lenders that you’re someone who can be trusted to repay what you owe. Importantly, if your credit is tied up with anyone else – like a financially chaotic housemate or previous partner – consider breaking ties with them, or you risk their financial behaviour damaging your own score.
Next, if possible, cut back on spending to save for a deposit – in theory, the bigger the deposit, the less you’ll have to borrow and easier your mortgage will be to repay. You’ll have to wait longer before buying your dream home, but the long-term results are arguably worth the wait.
It’s important to be prepared in advance, as you want to avoid your mortgage application being rejected at all costs. If you apply for multiple applications, this will damage your credit score.
If your mortgage application is rejected, you need to find out why and act accordingly. A mortgage broker or financial advisor is the best person to help you do this.
Use a mortgage broker
If you are buying a home for the first time, it can be difficult to secure your mortgage. There are a lot of ins and outs that no one could blame you for not knowing, and applying before you’re ready won’t help your future chances of being accepted.
Overcome this hurdle by finding a mortgage broker who will scour the market for the best mortgage plan for your circumstances.
Get in contact with Roebuck Mortgages to start that process with us.
Talk to us about your mortgage affordability.