# Mortgage affordability calculation. How is it done these days?



## dean j (Mar 30, 2007)

Morning all

Me and the missus are looking for a second mortgage on a family home and keep our flat (and mortgage on it) and rent it out, as there isn't much money in it to take my out (long story).

I run a little limited business and my missus works behind the bar in a local gastropub on a little wage. 

On the mortgage side of things, would me earning 50k and the missus 5k (for arguments sake) be looked upon as me earning 45k and the missus 10? She has taxable allowance I wanted to take advantage of, but wondered if a mortgage lender sees joint earners as one, or still go on multiples of the highest earner. 

Cheers in advance

Dean


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## cossiecol (Jun 29, 2014)

For your business it depends how long you've been trading, for some lenders you need to be trading for at least 2 years (unless you are already a customer then it's a year).

From our application (I run my own ltd company) they look at the income as separate and if you take home around 50k for arguments sake then that's what they base it on. For your wife assuming she is employed they base it on her salary (Net I believe).

I'm only basing this on my experiences, other lenders may differ.


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## Andyg_TSi (Sep 6, 2013)

I presume that as you are keeping the flat, the mortgage on that will be transferred to a commercial rate loan or buy to let mortgage?........you can prove that mortgage is then being covered by the rental income.

This I think will then free up your own income for your new mortgage for calculation purposes on your new home.


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## alan hanson (May 21, 2008)

as above your mortgage on the flat will change, you cant keep that on a standard mortgage and as most times theres a fee to change (along with insurance)


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## dean j (Mar 30, 2007)

Cheers for the replies. 

Regarding the mortgage on the flat, I was told by a mortgage broker that my lender doesn't do buy to let products, and seeing as my family circumstances have changed, I should be granted consent to let for a while. 

I'd sell the flat if it had a good chunk to take out of it, but we've only just moved back into it after it had a major damp issue (fixed under warranty), so with that against its record, why buy mine when the one up the road has no such problems?

ive been ltd for just over a year. I was self employed 8 or so years before that


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## Andyg_TSi (Sep 6, 2013)

That may well be the case as a concession given by the mortgage company on flat 1.

However AFAIK, if you are letting out the property, then the property needs to be remortgaged with a buy- to- let mortgage product, so you need to shop around for another lender. In addition, I believe you will then be able to claim the mortgage interest as an expense against the rental income you receive on that property. Also, this will help you from an accountability & Tax perspective, because if you try to claim mortgage interest on a non buy to let mortgage against the rental income, then your potentially opening yourself up to a whole lot of pain if your situation is looked at.

You can also demonstrate clearly to any lender you approach for a mortgage for your main home that the buy-to-let mortgage is being covered by the rental income & wont impact your ability to afford a mortgage on your main home. I know in recent years since the financial crisis, mortgage lending has been tightened up, so if it's gone back to being 3.5x your income as an individual or 2.5x your combined income as a couple, then you need to be in the best position possible


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## bmerritt87 (Mar 24, 2013)

You may not be required to remortgage the flat, Your mortgage company on the flat may allow you to let it out with consent to let subject to an increased rate in your mortgage I.e 1 or 2% increase. In terms of taking the new mortgage, as mentioned you will be expected to have 2/3 years worth of accounts as they will take your salary and dividends as income plus look at net profits of the company to ensure it can sustain your salary. In terms of your flat, generally they would expect you to have let it out for 6 months before its classed as self financing and most expect rent to be 150% of the mortgage payment, and if it's less will deduct the difference from affordability. Since the introduction of MMR lenders use an affordability model rather than X times your salary so it's not as simple to work out what they will lend, but most have affordability calculators online.


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