# How do banks calculate max. mortgage offer?



## michaelm (27 Nov 2008)

When I last took out a mortgage banks would lend something like 2.5 x 1st salary + .5 x 2nd salary.  How do they calculate the max. mortgage they'll provide now? Is it a multiple of gross (maybe 5 x gross) or repayment <= x% of disposable income or what?


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## NorfBank (27 Nov 2008)

BOI/ICS use multiples of salary. 

The other lenders use a % of your net disposable income (NDI)
The more you earn, the higher the allowable % will be.


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## michaelm (27 Nov 2008)

NorfBank said:


> BOI/ICS use multiples of salary.


Do you know what multiple?  From a cursory check I can't seem to glean such information for the bank websites.


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## NorfBank (27 Nov 2008)

Depends on whether you are a first time buyer, age and your income. Rule of thumb would be 4.5 times.


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## MortgageGuy (27 Nov 2008)

they generally use calculators that a spreadsheet based, you plug in various figures and the end result is how much you can borrow, some of these are available online, but a comprehensive answer would require the spreadsheet and a working knowledge of what figures can/can't go into it.


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## SteH (27 Nov 2008)

Isn't there a problem now because mortgage brokers advised people to "lie" about their income in order to qualify for mortgages, and also people who had no savings for a deposit just borrowed that too. So in a sense it isn't the banks fault if the broker is inflating earnings. People also count a bonus as earnings, which it isn't technically, so the multiple of the salary isn't "tweaked" that much by the banks/brokers.. just the salary itself.


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## geld (27 Nov 2008)

Very difficult to lie about your income, if you have to have proof of income in the form of a salary certificate completed, signed and stamped by your employer...


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## Dave Vanian (27 Nov 2008)

SteH said:


> Isn't there a problem now because mortgage brokers advised people to "lie" about their income in order to qualify for mortgages, and also people who had no savings for a deposit just borrowed that too. So in a sense it isn't the banks fault if the broker is inflating earnings. People also count a bonus as earnings, which it isn't technically, so the multiple of the salary isn't "tweaked" that much by the banks/brokers.. just the salary itself.


 
What has this got to do with the original query? This seems more like a post from someone peddling the notion that mortgage brokers in fact caused the credit crunch. 

A mortgage application is supported by a Salary Certificate from your employer, a P60, payslips and bank account statements. While obviously your employer might be willing to fraudulently overstate your salary on the Salary Certificate, if a broker can also falsify a P60, payslips and bank statements to corroborate the inflated salary, he can presumably also simply forge banknotes and give you the loan in cash.


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## NorfBank (28 Nov 2008)

Dave Vanian;754188 if a broker can also falsify a P60 said:
			
		

> Banknotes are easy, it's falsifying the bank statements I find most difficult.


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## michaelm (28 Nov 2008)

NorfBank said:


> Rule of thumb would be 4.5 times.


This is kinda what I was after.  I'd probably be looking to secure 5 x gross.





MortgageGuy said:


> they generally use calculators that are spreadsheet based . . some of these are available online


Can you post a link to one from one of the main lenders?


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## PaddyW (28 Nov 2008)

Try this.. Will give you a rough estimate :

[broken link removed]

Edit : Not sure if that's up to date, so err on the side of caution


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## Bank Manager (28 Nov 2008)

I'm probably going to surprise ye all, but I don't concentrate on multiples at all.  I sit with clients and work out their repayment capacity along the following lines ...

Net salary less mortage repayment (and I'd usually stress test by 2% unless the customer was opting to fix for five years).  That would show us (customer and I) what they had left to live on for the rest of the month, roughly what I'd be keeping an eye on would be, for a single person, something in the order of E1,200 to E1,500 a month (after mortgage repayment), and for a couple something in the order of E2,000 to E3,000, depending on kids (if any), lifestyle etc.

The above isn't probably worded that well, but take for example, two married couples both earning E50,000, there's a material difference between couple one who  have say E20k saved and couple two, who have no savings, maxed out credit cards and two personal loans - their respective mortgage repayment capacity is very different, it's the main resaon I've always stayed away from multiples, apart as a double check at the end of the process to ensure that we weren't coming up with a crazy answer.  I've always found this approach makes it more 'personal' to the customer, as it lets them work our what they can acutually afford in repayments rather than just concnentrating on the lump sum borrowed.

It's a longer process at the outset, but I always believe worth it in the long run (for both parties) ...

Hope that's of some help.

Regards,


BM

P.S. - for those of ye wanting to know what the multiple works out at it's usually around the 3 to 3.5 mark - higher income earners can go to a figure of 4 and sometimes a bit higher.  If I ever hit 5, I'd be re-checking my figures!


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## Spin (28 Nov 2008)

As a broker all lenders differ with the amount they lend and the rates they offer. Years ago they lent a multiple of earnings whilst now all lenders look at net disposable income. If for example you are a first time buyer and are single and intend renting out room/s and have no other borrowings you can expect to borrow 5/5.5 times your gross salary if earning over 30k
you need to shop around or get a broker to do this for you. 
I would be very shocked and surprised that any broker would ask you or encourage you to lie about your income and if anybody knows such a broker they should immediately report them to the Financial Regulator. With every loan application you need to submit a salary Cert, 2/3 recent salary certs, recent p60 and bank statements - All these are cross checked.
Spin
Mortgage Broker


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## michaelm (1 Dec 2008)

Bank Manager said:


> I'm probably going to surprise ye all, but I don't concentrate on multiples at all.  I sit with clients and work out their repayment capacity along the following lines ... P.S. - for those of ye wanting to know what the multiple works out at it's usually around the 3 to 3.5 mark - higher income earners can go to a figure of 4 and sometimes a bit higher.  If I ever hit 5, I'd be re-checking my figures!


It doesn't trouble me how it's actually calculated; I was just trying to ascertain how they do it.  I won't be lying on any forms or trying to borrow more than I can pay back.  I know that it's an art rather than a science but I think I've a better idea now how it works these days.  Thanks to all respondents.


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## Bronte (1 Dec 2008)

Bank Manager said:


> I'm probably going to surprise ye all, but I don't concentrate on multiples at all. I sit with clients and work out their repayment capacity along the following lines ...
> 
> It's a longer process at the outset, but I always believe worth it in the long run (for both parties) ...


Yes that is actually very surprising, never have I met a bank manager like that.  How refreshing a banker who only lends to people who can afford to repay and whose figures are based on reality.  How amazing a bank that allows the bank manager to make the decision.


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## deedee80 (1 Dec 2008)

> PaddyW*Re: How do banks calculate max. mortgage offer?*
> Try this.. Will give you a rough estimate :
> 
> http://www.mortgages.ie/index.cfm/sp..._i_borrow.html
> ...


 
I filled this in for me and my boyfriend.  Joint earning of 103k per annum - and it said we can borrow 710k!!!! I think it may be broken


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## Dreamerb (1 Dec 2008)

Broken? I think it may be insane! In my case, it supposes a mortgage until the main earner is 70, and a principal sum _I_ wouldn't lend me under any circumstances - even though I know my credit is good and my job secure.


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## Bank Manager (1 Dec 2008)

Bronte said:


> Yes that is actually very surprising, never have I met a bank manager like that.  How refreshing a banker who only lends to people who can afford to repay and whose figures are based on reality.  How amazing a bank that allows the bank manager to make the decision.



Et tu Bronte....!


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## PaddyBloggit (1 Dec 2008)

Am I reading this right?  Gross x 5 roughly gives me the max I can borrow?
Do this stand for purchasing a second property?


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## NorfBank (2 Dec 2008)

Depends on age and other monthly loan repayments. If you are under 30 with no loans then will  qualify for 5 times salary.


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## PaddyBloggit (2 Dec 2008)

NorfBank said:


> Depends on age and other monthly loan repayments. If you are under 30 with no loans then will  qualify for 5 times salary.



40 and no loans. Residence I'm in has no mortgage on it.

Any ideas what x times I'd get if I wanted to purchase/renovate a second property?


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## Bank Manager (2 Dec 2008)

Paddy - I posted earlier in this thread (28/11) - I'd suggest stay clear of multiples - I'm assuming you are in PAYE type employment, with reasonably regular wages (weekly/monthly).

I'm not asking you to answer these questions on this forum, but suggest you do you so in your own time ...

a)  Net take home pay - say monthly

b) Fixed amounts that have to be paid from same - e.g. car loan, petrol - exclude rent if your plan is to live in the property you intend to purchase - include any other fixed amounts (what I'm getting at here is lifestyle regular spending)

c) Analyse your circumstances - married/single, dependants - set aside any fixed costs here (leave yourself/selves enough to live on)

d) Set aside a 'fixed' amount, include some level for contingencies.

When you have all this done - see how much you have left over - that's the amount you have for your mortgage/life cover - use this figure to calculate what mortgage amount it would buy you. Then see what that mortgage would cost you if rates rose by say 2% - adjust accordingly.

An interesting test (on the basis you don't plan to purchase something tomorrow morning), would be to set this amount aside for the next few months in to a savings account - it will prove to yourself how much you can really afford and can you manage it.

Apologies if the above sounds like a lecture - I don't mean it to be.

I hope it's of some help.

Regards,


BM


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## PaddyBloggit (2 Dec 2008)

Bank Manager ~ that's a concise and welcome reply.

I am in P.A.Y.E. employment, no loans, no dependents and can live quite modestly. I am a regular saver in the hope of purchasing that retirement property:

http://www.askaboutmoney.com/showthread.php?t=98354

As a teacher .... I'm used to lectures! And I'm partial to the bullet pointed/numbered lists myself. 

Thanks again!


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## Bank Manager (2 Dec 2008)

Paddy,

I see what you're planning now ...

Best of luck with it - a lot of my last post won't apply directly to you, but hopefully it may help - as I say it's just the process I subject my customers to!

If you are going for the renovate option - build in a big contingency - it always seems to work out that way ....

Best of luck in your search ....

Regards,


BM


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## Spin (2 Dec 2008)

Dont forget that the amount you can borrow also depends on if you are purchasng the property as an Investment property or as your private residence. If Investment property max mortgage is 85% of the purchase price and you can borrow up to 92% if living in property. 
Spin


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## PaddyBloggit (2 Dec 2008)

Bank Manager said:


> Paddy,
> 
> I see what you're planning now ...
> 
> BM




Thanks BM ... I've been there and done that with the new car, the gadgets etc. The mortgage on my current home was paid off about 3 years ago. My plan (dream or not) is to get that second property sorted and paid off as quickly as possible .... take retirement as close to 56 as possible and get out of the rat race.

Your post has helped to focus me. Thanks for that.


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## PaddyBloggit (2 Dec 2008)

Spin said:


> Dont forget that the amount ..........
> Spin




In my case ... investment for my retirement .... I'd probably not install tenants in any property in the short-term and would probably consolidate my finances by selling the residence I'm currently in at a later stage.

I'd get out of Dodge totally when I'd retire!


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