Failing a lender’s affordability criteria is one of the most common reasons a new person, family or someone looking to relocate, may contacts us for advice. Believing that you can afford to borrow a particular amount after assessing your own budget, only to be advised by a lender that their assessment of your affordability is not the same, can be extremely frustrating. Ultimately you need to meet a lender’s affordability assessment if you are going to be able to proceed, but as all lenders tend to make this calculation using different data it means that one size certainly doesn’t fit all. Just because you do not meet one lender’s criteria for affordability does not mean you won’t for another.

What are my options if I can not afford a mortgage?

1. Don’t simply check one lender and then accept that this is what all the rest will do. Every lender works out their affordability in a different way, so ensure you are checking right across the market or at least a decent selection of lenders. Here at Just Mortgage Brokers we now have the technology to source numerous affordability calculators relatively easily, so these can be of great help if affordability is an issue.
2. If possible, consider reducing your loan to value. The lower your loan to value (LTV), the higher the income multiple a lender may be prepared to offer. For example you may find a lender will offer 4.5 x your income at 80% LTV, but increase this to 5 x at 75% or below. You could reduce your borrowing by either using some more savings where available, or alternatively, if you are raising any extra funds by means of a remortgage, consider what may be able to be taken out of the equation to perhaps be done at a later date.
3. Increase the mortgage term. This is not something we typically recommend as ultimately the longer your term the more interest you could pay, however, in certain circumstances an increase may have merit. For a repayment mortgage, a longer term will give a lower monthly payment that could mean that a lender will see this as more affordable. Remember you can always voluntarily overpay on your mortgage once it has started, subject to the terms and conditions of the scheme, or reduce the term later on if your income then permits.
4. Select a long term fixed rate. Some lenders may be willing to lend you more if they have the security of knowing your payment can not increase over a longer period such as 5 years. The thought being that after the fixed rate term your income situation will have improved to help with any increase in rates should this apply.
5. Get assistance from a family member or friend. Increasing the income a lender has available to assess affordability will improve your chances of success. The following options are possibly worthwhile considering:

• Guarantor
• Joint mortgage (typically up to four applicants are permitted)
• Joint Borrower Sole proprietor

6. Consider a Government scheme or other alternative housing and mortgage schemes. A variety of schemes are available with some of these being:

• Shared Ownership
• Deposit Unlock scheme
• Right to Buy
• Right to Acquire

7. Ensure the lender is aware of all your income sources. Whilst you may not personally be taking certain income into account when making your own assessment, by letting the lender know all sources of income will allow them to make an informed decision based on all the facts. Income such as the following can be used by some lenders:

• Overtime
• Bonuses
• Commission
• Maintenance
• Benefits
• Second jobs
• Rental income

What a lender is not aware of they can not use within their calculations, and they cannot make any assumptions, eg just because you have children they cannot assume you are in receipt of child benefit.

8. Get expert help. Affordability can be a minefield in the mortgage industry, and whilst the principles remain fairly much the same across all lenders, eg can you afford to pay back what you are borrowing, how they assess this differs with each and every one. Even the calculators that each lender has on their website will not always give you an accurate result, leaving you even more disappointed when you begin your journey thinking all will be ok, only to be dismayed when your application is declined on affordability when assessed in more detail. A mortgage broker is very well placed to know which lenders are better in different scenarios, and which are more likely to accept other income things such as benefits. They will also have access to very detailed affordability calculators to ensure what is quoted at the outset is what a lender should agree with upon full assessment. One word of advice here, do ensure you give an accurate picture of your finances when the broker carries out their calculations, eg make sure all credit commitments are disclosed – even the smaller ones.

What can you do if you can not afford your existing mortgage.

People’s financial situations can change and sadly sometimes for the worse. A loan that was affordable at the outset could become unaffordable during its lifetime. If you find yourself in this difficult situation here are a few pointers that we hope will offer some assistance.

1. Speak to your lender. Make sure your lender is aware of your situation. By keeping them informed they may be able to offer temporary solutions to help you through this difficult time. It is as much in their interests to ensure you get back on track as it is yours.
2. Request a payment holiday. Payment holidays, where made available by your particular lender, are to be used for specific life events and not as a solution to financial difficulties. However, where you are planning for an event such as a birth, or a sabbatical, where your finances may be reduced temporarily, a payment holiday could help.
3. Get expert advice. Speak to an independent organisation or charity such as Citizens Advice. These will offer you a broad impartial overview of your options and not simply in regard to your mortgage.
4. Look into Government assistance. Support for Mortgage Interest (SMI) is a benefit available to those that qualify to help towards the interest payments of a residential mortgage.
5. Be prepared. Whilst this is not a solution if you already find yourselves in a situation where you cannot afford your mortgage, it is worth knowing about possible things you can do to reduce the possibility of it happening again. Look into possible insurance policies for events, such as redundancy or illness, where you can protect your finances against such events. Policies such as the following are typically available:

• Income protection: Offer a guaranteed income in the event of redundancy or longer term illness
• Life assurance: Offering a lump sum payment in the event of the death or diagnosis of a terminal illness of the policyholder
• Critical illness: Not to be confused with terminal illness cover, critical illness pays a lump sum in the event of being diagnosed with a critical illness such as cancer, or Parkinson’s disease. The illnesses covered by insurers are typically quite vast but not limitless and can vary from one insurer to the next, so do ensure you know what your policy covers you for.

What can you do if your credit file has been affected by not being able to afford your mortgage?

If you have been through a spell of financial difficulty where it has impacted on your ability to afford your mortgage it is highly likely that a record of this will be noted on your credit file. Indeed, it may not simply be your mortgage that was affected. Whilst it is unlikely that a lender can assist if you have current mortgage arrears, certain lenders will take a view on many different bad credit events. Here at Just Mortgage Brokers, together with our trusted associates, we have access to many lenders that will consider applicants with a record of

• Mortgage with CCJs
• Mortgage with defaults
• Mortgage with missed payments
• Mortgage with late payments
• Mortgage after an IVA
• Mortgage after bankruptcy
• Mortgage with a DMP
• Mortgage after repossession

We will try to assist you whatever your adverse mortgage needs, so contact us today and one of our bad credit mortgage advisors will be on hand to discuss your situation.

Try our mortgage affordability calculator below.