Before credit scoring was a thing, mortgages were manually assessed by your local Building Society Manager. In the 1990s, to make this process more consistent and reliable, lenders decided to move towards more uniform income assessments.
To reduce mortgages being accepted to people who couldn’t afford one, a lending cap was brought. This stopped people borrowing more than three to four times their annual income.
Over time, lenders became more and more generous with this lending cap and their conditions and ended up bringing it down to receive more applications. Some Lenders where even granting their customers a mortgage without any background checks such as payslips. This was never going to end well, causing the credit crunch in 2007. During this time, lenders were asking for a crazy 20-30% deposit making it incredibly hard to get a mortgage regardless of whether you were moving home in Birmingham or a first time buyer in Birmingham.
Eventually, the market made a recovery and in 2014 a new and improved credit scoring system came into place, called the Mortgage Market Review (MMR). The MMR has introduced a brand-new set of requirements that lenders have to adhere to. Lenders now have affordability calculators that determine if an applicant will be able to pay off their mortgage based on their financial situation.
These calculators also provide a deeper insight into an applicant’s spending habits and net disposable income. Your bank statements are completely scrutinised to ensure that if you can’t afford a mortgage then you are not granted one as you could’ve been previously.
Lenders will always compete on price and lending criteria but will avoid a race to the lowest interest rate as it will never profit them. This will show in the number of variances between Lenders and their maximum borrowing capacity. Different Lenders are looking for different niches of clients so just because one Lender says they won’t lend you enough, by no means is this the end of the road.
Some lenders will take into account state benefits such as tax credits for a mortgage. Others could be more generous if you are applying for a
Self Employed Mortgage in Birmingham. Extending the term of the mortgage to the maximum allowable also increases the amount they will lend.