Monthly Payments

Affordability is forever a hot topic when it comes to mortgages. While income and expenditure are the driving forces behind the affordability calculation, many other factors affect borrowing capability with lenders constantly competing to find their niche and attract new business. Maximum borrowing has and will continue to be play a central role as this determines overall budget. However, with interest rates rising, ensuring the monthly payments are affordable on any level of borrowing is paramount.

People want to know how much they can borrow before looking to buy, move or remortgage and rightly so. Through the recent years of extraordinarily low interest rates, many homeowners have chosen to leverage themselves highly by borrowing close to or right on the maximum amount available to them. Low interest rates have meant the monthly payments have often been affordable regardless. Added to this, many lenders now offer mortgages over a 40-year term which have allowed people to stretch the mortgage over a longer term to reduce monthly payments. While there is nothing intrinsically wrong with taking the mortgage over the maximum term, it leaves little to no room to extend the term should your monthly payments become unaffordable.

Mortgage rates are still relatively low, but we’re all aware they have risen significantly over the last year. Borrowing the maximum is still a possibility and if the payments are affordable then the option may still be viable. The key point to note is that just because you can get the mortgage, if the payments are not truly affordable for your lifestyle, then it is not practical to proceed. Having an understanding of what you genuinely spend month to month can help determine what you can accurately afford when it comes to monthly payments on your mortgage. If payments become too much and are made late or missed, this can have long term consequences in terms of future applications for credit.

Until recently, all residential mortgages were stressed at 4.5% above the pay rate. This meant the mortgage had to be deemed affordable if your interest rate was to increase 4.5% above what you were initially paying. This was removed as it was deemed an unnecessary and somewhat irrelevant restriction with loan to income (LTI) multiples being the predominant factor used by lenders to regulate borrowing. However, there are rare occasions when a lender will deem a mortgage affordable and the reality is it probably isn’t. Self-awareness is needed in these situations, especially if you’re not using a broker.

Where possible, you want a mortgage that works around your lifestyle rather than having to live around your monthly payments! For current homeowners approaching a remortgage, getting in touch early to discuss options can save a significant amount on monthly payments. A remortgage can be sorted six months in advance of your current rate expiring! If you’re concerned about rising interest rates and the effect on monthly payments, we’re here to help with free, professional advice.