Mortgage applications: Affordability assessments

What are the advantages of assessing affordability rather than salary when considering a mortgage application?

Noel McLaughlin of Butterfield Bank (30787479)
Noel McLaughlin of Butterfield Bank (30787479)

Noel McLaughlin, of Butterfield Bank, replies:

BUYING a home is one of the most significant financial decisions that we can make. In Jersey, the size of that investment is continuing to grow. Latest figures from the Government of Jersey show that the average price of a local property at the end of 2020 was £567,000 – a 5% increase on the previous year.

This rising market means that some homebuyers will often need to borrow more to afford their ‘forever home’. While each mortgage lender has its own criteria for affordability, the ability to purchase a home typically has an income cap based on salary multiples. Through our group-wide experience in banking, we know that people’s lives and circumstances are often more complicated than that. This method of assessing means that if the buyer doesn’t meet the criteria, often decided by a computer, they will find themselves priced out of properties they previously thought they could afford. This can be particularly frustrating for those with alternative income sources that can often be discounted during the mortgage application process.

However, there are other options available. It is possible to secure a mortgage where other factors, such as work-related bonuses, are taken into account. Some lenders consider general expenditure when assessing affordability, such as monthly ingoing and outgoings and existing debt. When lending is based on a debt service ratio the level of lending is tailored to individual circumstances. This could mean that a potential homebuyer might be able to borrow more than the normal four to 5.25 times salary.

The best way for a lender to gain a holistic view of a client is to meet them and get to know more about their lifestyle and requirements. By providing flexible affordability criteria, coupled with a client-centric approach, more people could fulfil their dream-home ambitions.


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