The amount has gone from 30 per cent to 35 per cent. This means joint borrowers typically earning £50,000 of combined income can now borrow £206,231, rather than the £169,139 previously.
This figure is calculated as follows:
Joint income of £50,000 x 35 per cent = £17,500
Deduct existing commitments (e.g. £300 per month / £3600 per year) = £13,900
Divide by product’s standard mortgage rate (e.g. 6.74 per cent) = £206,231 supportable mortgage advance
If the borrower has no existing monthly commitments the supportable mortgage would increase to £259,643.
This enhancement has been made following an analysis of all Freedom Lending residential mortgages completed since May 2004. The review included an assessment of the current calculation and account performance and the likely impact of a modest increase in the gross income allowable, taking into consideration potential increases to Bank Base Rate in the near future.
Freedom Lending marketing director Mel Dring said: “Freedom Lending was one of the pioneers of affordability calculations and we are now using our accumulated experience to fine-tune our approach for the future.
“We believe this modest increase in allowable gross income will give borrowers a much welcomed increase in borrowing power, whilst still maintaining a prudent approach to the way in which we assess applications. This is a further example of the way in which we have been able to review and enhance our products since being acquired by Merrill Lynch during the summer.”
