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Your Budget

Affordability is the major consideration when choosing a mortgage. Typically most high street lenders will lend a single person between 3 and 3.5 times their pre-tax salary. Other credit commitments, such as to a credit card or personal loan will generally not be taken into account. Some lenders will also allow you to add a proportion of any regular bonuses you receive to this base figure. If you are making a joint application, the lender will generally offer between 2.5 and 2.75 times the combined pre-tax salary. However, because the mortgage market has become highly competitive, some lenders are ignoring these official limits. You might find a lender who is prepared to give you a mortgage up to five times your salary so that you can buy your dream home, but if you found yourself struggling to make repayments, you'd only have yourself to blame. It is worth bearing in mind the consequences of taking on such high multiples. Aside from the obvious problems that would occur if you were to lose your job or take a drop in income, there are plenty of external problems that might affect your ability to keep up payments in the future. If, for example, interest rates were to soar, anyone with anything other than a fixed or capped-rate mortgage could be in for a bumpy monthly ride. Repayments that started out a doddle will suddenly rocket. Similarly, if you opt for a discount mortgage with a fantastically low rate for the first, say, two years, you need to be prepared for the end of that discounted period. If you are not able to make the transition from the lower rate to the lender's standard variable rate (SVR) or Bank of England base-rate tracker smoothly, that jump can come as a nasty shock to your bank balance. Remember your home will definitely be at risk if you can't afford to keep up the repayments.

 

Borrowing


As a general rule, mortgage companies will allow you to borrow three times your salary, or two and a half times your joint salaries if you're buying with someone else. However, in the current market there are many different types of mortgage available, some of which will let you borrow more than this. For example, some companies will allow two people buying together to borrow three times the greater salary and one times the lesser. There are also many innovative schemes around, such as those that allow borrowers to add the rental income from letting one room to their salary before their income multiples are assessed. It's worth seeking advice from two or three independent mortgage or financial advisers to find the best deal for you. Remember, though, that even if interest rates are low now, there's absolutely no guarantee they'll stay that way. Never keep back any information on debts or county court judgements when securing a mortgage; it could come back to haunt you.