How do banks calculate max. mortgage offer?

M

michaelm

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

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.
 
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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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!
 
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
 
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!
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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.
 
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) ...
Click to expand...
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.
 
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.
 
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.
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Et tu Bronte....!;)
 
Am I reading this right? Gross x 5 roughly gives me the max I can borrow?
Do this stand for purchasing a second property?
 
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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