Mortgage Meadow / Help / General mortgage help and mortgage types

The first thing to remember is that there can be a difference between what you can afford and what the lender will let you borrow. Mortgage lenders are increasingly relying on a system called credit scoring. Credit scoring is a highly sophisticated, electronic risk assessment application. The credit score not only takes into account the public information held on Credit Agencies databases (such as voters roll information, CCJ's, Arrears and payment history on loans), it uses data collected from the lenders own client database and a vast array of other sources. Very simply, an applicant is scored against all this data and "points" are awarded for job type, income, number of loans, marital status, length of service in current job and so on.

Once all these variables have been collated the applicant is given a score, or a pass rating, and the higher the pass then the more risk the lender is prepared to take, either by lending more against a persons income, or, a higher loan against the value of the property. No two lenders credit scoring are the same, even if they are part of the group of companies (Halifax and Bank of Scotland are good examples of this), an applicant might fail or have a low score with one but be accepted by the other.

Lenders not only have a regulatory obligation to be responsible in their lending, it is also in their best interests. They simply would not make money if everyone paid late or not at all, so these credit scoring systems benefit from vast sums of money and resources. It is now possible, with some companies, to simply go through the credit scoring exercise and have the property valued for lender to make a formal mortgage offer because of the faith they have in the resilience and accuracy of their credit scoring systems.

Fundamental to the credit scoring and general assessment of an application is affordability. Up until the last few years, mortgage companies would apply a multiple of salary, regardless of someones earnings, as a basis for what they could borrow. For example a client on £25,000 could only borrow £93,750 (3.75 times the salary) and a client on £50,000 would have access to £187,000 on the same multiple. It is likely that the person on £50,000 has more disposable income compared to the first applicant and could therefore borrow more.

Equally, two clients on the same salary may now be offered different loan amounts, maybe because one is already paying a mortgage, or is in a job perceived to have greater security or opportunity for greater earnings in the future. With a high credit score the applicant who a few years ago would have been offered £93,750 could now perceivably be offered a loan of around £137,500.

Not every lender uses an affordability calculation and many still work on multiples of income (especially in the credit repair sector). A very rough rule of thumb is add up your gross guaranteed salary(ies) and add to that half of your annual gross non-guaranteed income (bonuses, overtime, commission for example), deduct from this total the annualised sum of any monthly loan or credit card payments that will not be repaid after the mortgage has completed. Multiple the figure left by 3.75 for a guide to what you could expect to be offered, but remember this very, very rough and it best to speak with a broker having worked out what you can afford first. For a better idea, try our borrowing calculator in the Mortgage Calculators section

Now remember, just because the lender is prepared to offer our applicant on £25,000 £137,000 does not mean that this amount should be borrowed. If you have worked out how much you can afford and it is less than you are offered, then don't be swayed – the lenders assessment may not have taken into account all of your costs, or may not have allowed for the same rise in interest rates that you have.

Please remember that these are only examples and must only be used as a rough guide. They do not accurately predict how much you can borrow.