The last few months have seen some major changes in the way mortgage loan sizes are calculated, with lenders moving away from static income multiples and switching to an affordability based model. These changes will ultimately restrict the maximum mortgage sizes currently available further, and in some cases decrease some people’s capacity to borrow.
Mortgages loans used to be based upon a borrowers income and a multiple, for example many banks would lend a maximum of five times someone’s salary. Making it quite straight forward for someone to roughly calculate the maximum loan they could have.
Now they are now more heavily weighted to the assessment of the potential borrower’s affordability of the mortgage payment and the ability to repay the mortgage at the end of its term. This means the mortgage payment itself must be affordable alongside the borrowers existing commitments, such as credit card or loan payments and general living expenditure such as food and travel. Whilst this process is more complex they ensure lending is affordable for the borrower.