11 May 2008 - French Mortgage News | International Mortgage News | Uncategorized |
Affordability and how it is calculated
If you are thinking about that dream overseas purchase and you are weighing up the benefits of purchasing the property with an overseas mortgage or using cash raised against a property in the UK, it is important that you understand how foreign lenders calculate affordability.
As a general rule, overseas lenders are more cautious than banks here in the UK, where mortgage affordability is calculated using earnings multiples based on an individual or joint income. Lenders in mainland Europe calculate affordability by looking at an individual’s income and calculating how much of it is used to repay both existing debt and also the new overseas mortgage.
The threshold that most lenders use is between 30 – 40% of an individual’s income, however some will be more flexible in certain scenarios.
What do lenders include as existing debt? Generally, they will consider any existing contractual obligations that are payable on a regular basis, which includes;
- Any existing mortgage or rent you pay on your main residence
- Any other loans including car loans
- Other mortgages on buy-to-let properties
- Credit card payments may be taken into account if they are substantial
Different lenders will look at credit card debts in different ways, as is the case with buy to let portfolios and the rental income that they produce. Generally, if buy-to-let mortgages are adequately covered by the rental income, and the individual can produce evidence of a rental contract and good rental history, lenders will not take these obligations into account when considering overall affordability.
If you would like further information on how much you can borrow in a particular market, why not speak to one of IPF’s dedicated country specialists now?
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