Rachel McKay, mortgage analyst from Moneyfacts.co.uk, comments on income multiples versus affordability and using stretched income calculations.
“In many ways we’ve started to come full circle as more providers move to evaluating how much a borrower can afford to repay rather than using income multiples. On the face of it both calculations seem quite straightforward. With income multiples, a provider will typically lend three to 3_ times salary. Lending based on affordability looks at what is left over from your pay packet after deducting all your outgoings.
“In both cases you may have the opportunity to request an underwriter to have a further look at the calculation and potentially allow a ‘stretch’. This means taking certain things into account, which may influence the underwriter to allow a higher (stretched) level of borrowing. The criteria may include lower loan to value, overtime and/or bonus payment being included in the calculation and even a high credit score allowing more flexibility.
“Another look at the application is normally carried out after the credit score of the application and multiple applications can leave a mark or ‘footprint’ on your score, which may not be in your favour, so bear this in mind.
“Income stretchers can be very useful, but should always be used with caution and allowances should be built in for emergency expenditure.”
