Affordability Calculator
As you are aware FSA regulation brought into effect guidelines on the way lenders underwrite loans with regard to affordability.
Gross Income Multiples are available as a quick reference guide only. An assessment of income and expenditure is the underwriting measure used in establishing the maximum that can be borrowed. The Society has introduced a new and short Decision In Principle (DIP) form to determine the amount your clients can borrow. The form will be used in conjunction with a full credit reference search to further enhance the decision.
The initial underwrite of the mortgage application will be carried out using the Affordability Calculator.
The first area is to check that the mortgage application fits within the Society's LTV ratios.
Gross Monthly Income
- Add both gross incomes together for joint applications
- For self employed use average Net Profit, if Net Profit increasing, divided by 12, otherwise use latest Net Profit divided by 12
- Use 100% of all Guaranteed Income
- For any of the incomes listed where 50% is used, input the full amount under Non-Guaranteed Overtime and the calculator will automatically take 50%.
The calculator will automatically deduct 30% of gross income to cover sundry deductions i.e. National Insurance and Tax.
Income that can be used within the calculator is listed below.
For income multiple purposes, the following will be used:
|
Employed Applicants |
Self-Employed Applicants |
| Those who trade as a Business |
Those who own a Limited Company |
| Basic salary or Directors Remuneration |
100% |
- |
100% |
| Net Profit |
- |
100% |
- |
| Profit before Tax |
- |
- |
100% |
| Guaranteed Overtime |
100% |
- |
100% |
| Bonus Payment |
Guaranteed |
100% |
- |
50% |
| Non-guaranteed |
50% |
| Commission |
50% |
- |
50% |
| Maintenance Received |
100% |
100% |
100% |
| Rental income (Investment) |
0% |
0% |
0% |
| Investment Income |
0% |
0% |
0% |
| Pension Income |
100% if received |
100% |
100% |
| Non-guaranteed Overtime / second job |
50% |
- |
50% |
| Dividends |
- |
- |
100% |
Contract Workers
Employees on Fixed Contracts.
The Affordability Calculator will apply within both situations subject to the applicant meeting the following criteria:
- Funds to be for a loan on main residence for own occupation.
- Must be a UK resident or have indefinite leave to remain in the UK.
- Contract must be for at least 12 months.
Self Employed Contracts - IT / Management Consultants - Treat as Self employed
Outgoings
New FSA guidelines now insist that we use all personal expenditure including all loans and credit cards shown within the credit search to be deducted as outgoings.
For a decision in principle we must have authority to carry out a credit search and the income and expenditure needs to be clearly completed in order to establish the true free net disposable income.
With regard to credit cards, where balances are to remain after completions, the calculation for the monthly outgoings will be balance x 3% maintenance payment being made will be shown as an outgoing.
For a decision in principle we must have the authority to carry out a full credit search. You will need to give your clients the Data Protection Notice and obtain their consent to the credit search.
The form must be clearly completed and the declaration ticked.
Responsible Lending and affordability
- The Society will consider applications where the percentage of disposable income used to pay the mortgage does not exceed 50% for applications with a score of Pass or Refer. Consideration for cases outside of these parameters may also be given and you will need to contact your local Business Development Manager on 0800 87 66 010.
- A key consideration will be the applicants overall conduct of their bank account together with credit reference checks. If these factors do not demonstrate that the mortgage is affordable, even if the Affordability Calculator suggests we will consider the loan, the application may be declined.
- Figures used will be validated by support documentation in all applications.