The calculator will aim to give a more accurate assessment of income tax and national insurance payments, while adjusting for the number of dependents the borrower has and their household expenditure in relation to income.
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The calculator treats all stated income, including non taxable incomes, such as maintenance payments and benefits, as 100 per cent.
Customers with larger surplus incomes may be able to borrow greater amounts, while maximum advances for those already highly indebted with greater household expenditure will be reduced.
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Roger Taylor, director of sales at SPML, said: “Affordability based lending provides a far more realistic method for determining a maximum lending limit, taking into consideration an individual applicant’s personal circumstances. Calculations using this model are also much better equipped to deal with changing market influences and are better suited to a principle based lending environment where treating customers fairly is imperative.
“At the moment, borrowers are seeking larger loans amounts to keep up with growth in house prices. At the same time, TCF principles are paramount and there is a regulatory emphasis on ensuring customers are not financially overstretched.”
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James Cotton, mortgage specialist for London & Country, commented: “Any system that allows you to get a more accurate picture someone’s affordability or a more tailor made affordability result is a good thing. Overall, it makes sense to consider lending more to higher dispensable incomes, because a lot of outgoings people have are the same, as long as it’s balanced with responsible lending.”
