It is important that we demonstrate that an applicant can reasonably afford to repay their mortgage before we agree to enter into a regulated mortgage contract with them. The use of income multiples alone is not sufficient to assess the maximum amount we'll lend.
Your client’s affordability will also be assessed using information collected in the 'Affording your Mortgage' section of our application. Here, you'll need to detail their regular financial commitments to show that they can afford to make the required monthly repayments.
There are several factors to take into account when assessing your client’s ability to repay their mortgage:
This should include the applicant’s actual verified income, net of tax and National Insurance. When making a lending decision or contract variation the underwriters can consider various sources of income (please see the requirements table). The underwriter must consider the variability of the income over time to ensure the mortgage payments remain affordable to the customer. Variable (or non-guaranteed income) must be verified over a sufficient period to inform an assessment of sustainability.
The data captured in the application must take into account committed expenditure (eg credit cards, overdraft, council tax, loans, hire purchase, school fees). Basic essential expenditure and basic quality of living costs will be accounted for in the affordability model.
Monthly mortgage commitment
The monthly repayment must be met from the applicant’s actual or reasonably anticipated income. If the applicant intends to repay from resources other than income, reference to information given by the applicant must be given on the application form.
For repayment mortgages
The monthly repayment used in affordability must be calculated on a capital and interest repayment basis. This should be based on the applicant's current affordability rate or pay rate, whichever is higher (please see current product rate sheets for details on the affordability rate). This should also be based on the term of the mortgage or until the applicant is 70, or at the normal retirement of the principal applicant (main income earner), whichever is sooner. For any repayment mortgage term greater than 35 years and up to 40 years, a maximum term of 35 years would be applied for affordability purposes.
For interest only mortgages
The monthly repayment used in affordability must be calculated on a capital and interest repayment basis at the current affordability rate or pay rate, whichever is higher (please see current product rate sheets for details on the affordability rate). This should be over an assumed term of 25 years or until the applicant is 70 or at the normal retirement of all applicants, whichever is sooner. Please note, for interest only mortgages the maximum term is 25 years. Where income into retirement from any applicant is required to meet affordability, it is not acceptable to lend on an interest-only basis.
Second or subsequent properties
Second or subsequent properties: commitments in the form of mortgage payments on second properties, other than those on properties confirmed as Buy to Let or Permission to Let properties, should be applied on a standard repayment basis over the outstanding mortgage term at the current affordability rate or current payment amount, whichever is the higher when assessing affordability. Where a credit limit applies to the existing mortgage borrowing, then it is this figure, including any undrawn monies, that should be used when assessing affordability. For properties that are let, any shortfall between monthly rental income received and actual monthly mortgage payment should be included as a commitment.
In addition, a fixed-value commitment for each additional mortgaged residential property held is applied by the system to cover all other costs – this only applies to other residential properties, ie, second residential homes, but not any property confirmed as being on a Buy to Let or Permission to Let basis.
The running costs of any unencumbered second property need to be included in the affordability assessment – please manually enter figures on the Commitments screen.
Remaining disposable income
The applicant’s 'disposable income' – ie, their monthly income after accounting for regular commitments as detailed above, must be sufficient to cover all other general living expenses, eg food, clothing, utility bills, hobbies.
Disposable income requirements are set by Barclays and must be met in all instances. Where these levels of disposable income are not realised, the application should be declined.