How Much Can I Borrow for a Mortgage in Derby?

How Much Can I Borrow For A Mortgage | MoneymanTV

Here at Derbymoneyman, we find the two questions First Time Buyers and Home Movers in Derby commonly ask us is ‘Can I get a mortgage in my circumstance?’ and ‘How much can I borrow?’. In this article, we will be discussing the second question as this has changed drastically in the past decade.

Historic rules for borrowing for a mortgage in Derby

Prior to the days of credit scoring, your local Building Society Manager would manually assess mortgages. To make the process more consistent and reliable, the 1990s introduced the idea of lenders carrying out more regular income assessments.

In order to lower the number of mortgages being accepted to people who couldn’t afford one, a lending cap was introduced. This prevented people from borrowing more than three to four times their annual income.

To receive more applications, lenders started to become more generous with this leading cap as well as their conditions. There were even some lenders who accepted customers a mortgage without any background checks such as payslips. This would eventually become the catalyst for the credit crunch in 2007. In the midst of the credit crunch, lenders were requesting a 20-30% deposit, which made it very difficult to obtain a mortgage as a first time buyer in Derby or if you were moving home in Derby.

Mid 2000s approach

In the early 2000s, lenders became flexible in their criteria a lot more, arguably being too generous in the amount they would be willing to lend their customers.

Depending on the lender, some people were offered self-certified mortgages. These type of mortgages meant you were not required to have a background check so as the customer, you could self certify your income, regardless if the buyer falsely inflated the amount they were declaring.

Due to many people carrying out self certified mortgages, the market fell. This began the infamous Credit Crunch of 2008, from then to 2010, these became a very difficult times.

This especially effected individuals who were wanting to take their first step onto the property ladder. At that time, stricter lending criteria was to be put in place due to lenders having to change.

Mortgage Market Review 2014

As the market made a recovery, the Mortgage Market Review (MMR) 2014 was created to provide an updated and sounder credit scoring system. The MMR was a set of requirements that lenders had to follow. Nowadays, lenders can determine if an applicant will be able to pay off their mortgage based on their financial state through the affordability calculator.

Lenders can use the calculator to receive a more meticulous insight into an applicant’s spending habits as well as net disposable income. A thorough assessment of your bank statement is carried out to ensure that if you can’t afford a mortgage, then you are not granted one as you could have been prior.

Deeper analysis

With this assessment, you will find that the majority of lenders will no longer go past 4.75 times your annual income.

As mentioned, lenders will look into your spending habits and the way they analyse these depends on your situation. For example, you may have to pay high childcare costs, have a large number of credit commitments and in some circumstances, you might be paying off your student loan. With this in mind, a mortgage lender will likely offer you less than your work colleague for example, who has fewer outgoings.

These days, there is a distinctive difference between lenders when it comes to how much or little they will lend to some customers. Now and again, lenders have been known to penalise low-earners. 

The reason for this might be that they are looking for that type of applicant. They may lend if they see pension contributions as a fixed outgoing, in particular, to customers who have a significant deduction, less than a private-sector worker.

With every lender comes a very unique lending criteria, and every customer has its own circumstance, in the case that you need to maximise your borrowing capacity to have a chance at buying your dream home.

Lender Variances

Lenders will always be competitive when it comes to price and lending criteria, however, they will avoid competing for the lowest rate as this will provide no profit gain for them. Furthermore, this will be highlighted through the difference between lenders and their maximum borrowing capacity. Different lenders target for different niches of clients therefore don’t feel it’s inevitable that one lender won’t lender to you as there will be another out there who would.

State benefits like tax credits are factors lenders will take into account for a mortgage. Some lenders may be more generous if you are for a self-employed mortgage in Derby. Increasing the amount they will lend can be done through extending the term of the mortgage to the maximum allowable.

How can a Mortgage Advisor in Derby help?

Seeking Mortgage Advice in Derby can be very beneficial. On behalf of the customer, our team will search the market to try and match you to various lenders criteria.

When it comes to knowing the maximum amount you can borrow for a mortgage and your repayments, book your free mortgage appointment online today to speak with one of our expert Mortgage Advisors in Derby. They are determined to make sure your process run as smoothly as possible and search through thousands of mortgage deals to find you the most suitable for your circumstances.

Problems & Hurdles Obtaining a Mortgage in Derby

Specialist Mortgage Advice in Derby

As a mortgage broker in Derby, we find that some customers are faced with hurdles that regularly crop up. Furthermore, it’s rare there is a situation our expert mortgage advisors haven’t been faced with before. Therefore, we are here to help with any situation with our Specialist Mortgage Advice in Derby. Below are some factors you may come across when getting a mortgage:

Child Care Costs

Getting turned down for a mortgage due to childcare rarely happens. The only impact it may have is that you might get granted a lower mortgage amount compared to an applicant with the same income but no children. They still get taken into account as childcare costs are assessed as a loan or credit commitment. Additional expenses that children bring are automatically taken into account with the lender’s affordability calculators.

You may find a number of lenders will factor in state benefits including child benefit, however, this may impact the maximum mortgage allowable further.

Mortgages following Divorce/Separation

You don’t buy a home with your partner with the expectation of divorce or separation. Unfortunately, this can be common and when it does, you need to alter the family finances.

The most common question we get asked include:

  1. How do I remove my ex’s name from my mortgage?
  2. Can I remove my name from my ex’s mortgage?
  3. Am I allowed to have a second mortgage?

The answer to all of the above can be yes, however, you will need expert mortgage advice. In the case where you do end up receiving maintenance, this can be included as part of the assessable income for a mortgage.

Starting a New Job – Can I get a Mortgage?

We find this question crops up a lot, it is usually straightforward. In some cases, you will need to have been working consistently for a certain period, however, this all depends on the lender’s criteria. Even if you are in your first job, you can get a mortgage. If you are starting a new career soon, as long as you have a signed contract and job offer letter, you may be able to get a mortgage.

A factor that can be a problem with some lenders is gaps in employment. Usually, probationary periods are acceptable in any case.

Evidencing Your Deposit

These days, Anti-Money Laundering precautions are fairly stringent. To abide by these precautions, all lenders will need you to not only evidence your deposit but, where the money originated. As well as the lender, your solicitor and the estate agent you are buying from may ask you for this too.

Cash is not acceptable. The bank will question any significant cash deposit, which could lead to a rejection of your application.

All of your deposit coming from a gift can be a regular occurrence and is possible. There needs to be written evidence from the person gifting you the money that it is a gift, not a loan.

Derbymoneyman Spring Budget Update 2021

Rishi Sunak’s second Budget as Chancellor brought two pieces of welcome news for the property sector as the Government attempts to transform “Generation Rent” into “Generation Buy” to help stimulate the UK economy, namely the new 95% Mortgage Guarantee and an extension of the Stamp Duty Holiday.

95% Mortgage Guarantee

The name of this scheme is misleading as not everyone that applies is guaranteed to be offered a mortgage, it is still subject to affordability and credit score. The “guarantee” itself is that the Government will ensure Lenders don’t stand a loss if they grant a 95% mortgage to a customer who then subsequently falls into arrears and is repossessed leaving behind negative equity.

This scheme should in theory give Lenders more confidence to lend even though the applicant only has a smaller deposit to put down. Of course, Lenders never want to repossess someone’s home unless it is the last resort, but if that happens then the new scheme would cover any shortfall.

Lenders have been worried about the prospect of home values decreasing so this measure should alleviate that concern although of course, the chances of negative equity occurring will naturally reduce should property prices increase as a result of these announcements!

The scheme is available to both 1st Time Buyers and Home Movers, it’s available on any property (not just new build) and will run until December 2022. Some major High Street Banks have already signed up to the scheme and it’s likely more will follow later on. It’s still a big challenge for Lenders to cope with the demand they are getting for mortgages due to the difficulties training and supervising staff working from home but they will want to offer as many of these mortgages as they can.

Stamp Duty Holiday Extension

When the Stamp Duty Holiday was launched last year we all hoped life would be very much back to normal by the cut-off date of 31st March 2021 but things didn’t pan out that way as we know. Solicitors are struggling to keep up with the workload and if lots of chains had collapsed then it would have partly defeated the object of the exercise.

Therefore it was good to hear the scheme has been extended to 30th June for purchases up to £500,000 and 30th September for purchases up to £250,000.

The Government certainly sees the property sector as an area that can play a big part in our economic recovery and if you are looking to buy a home or remortgage this year please reach out and we will be happy to advise you.

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How Long to Fix Your Mortgage in Derby

As rule the longer your fixed-rate mortgage deal the higher the interest rate usually will be. Therefore, if you are looking for the lowest rate possible then it’s short term fixed rate you need. As a result, your mortgage will be up for renewal quicker and when you come to remortgage with a new deal your payments might increase.

Choosing a Fixed Rate Mortgage

Typically mortgages are taken out and re-payed over a period of 15, 20, 25 years. Over that time interest rates will fluctuate (either up or down).  With a variable rate mortgage monthly repayments are subject to mirror that change. Many people will worry about interest rate rises, particularly after such a long period of low rates as we have enjoyed over the past ten years.

The bank of England raised the UK interests rates to 0.75& in August 2018 and most people are expecting to see a rise in interest rates in the near future. With this in many peoples minds, a fixed-rate mortgage offers certainty to borrowers, allowing for forward planning of monthly outgoings,  with the assurance of no sudden rise in the monthly mortgage repayment

Medium-Term Fixed Rate Mortgage

A medium-term fixed rate would be the way to go If you prefer not to be re-arranging a new mortgage so quickly. We find that five year fixed rates are popular as they provide the certainty that monthly payments will not increase in the foreseeable future. During this time though there is a risk that interest rates may also drop meaning you are paying more than you might have been had you fixed for a shorter period.

There are seven and ten year fixed rates mortgage deals on the market, although these are limited. Fixed-rate deals of this length have always been the least popular. Customers tend to feel this is too long to fix in for as a lot can change in a decade! These are the most expensive fixed mortgage products available.

Selecting Your Mortgage Deal

When choosing your mortgage deal be careful to watch out for booking and arrangement fees. A booking fee is payable upfront and an arrangement fee is payable on completion. Some people add fees to their mortgages, but this increases the total amount repayable as interest accumulates on the fee.

If you are taking out a small mortgage then it is more likely that you would want to take out a mortgage with no fees, even if a slightly higher rate of interest applies. The opposite applies if you are taking out a medium or large mortgage, your Advisor will help you with this tricky decision.

Choosing a mortgage requires consideration. There isn’t a single mortgage product that suits everyone. Your selection will depend on your personal circumstances. For example, if you think you may be moving in the next two or three years you may wish to choose a fixed deal for that period. (It is possible to ‘port a mortgage’ but you may be better discussing this with your mortgage advisor in advance). If this is your final move, perhaps a longer-term fixed rate may be more suitable.

One final point worth remembering is that with a fixed rate if mortgage interest rates fall, you will still be paying the agreed higher fixed rate.

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The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
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