I’m a mortgage expert and here’s why ordering takeaways could stop you getting on the property ladder
ASPIRING homebuyers who splurge on takeaways could find banks snub their application for a mortgage, a broker has warned.
James McGregor, director of Mesa Financial, has seen clients turned down for a loan because they had regularly splashed out with Deliveroo and Just Eat.
James says: “One borrower was spending around £800 a month on takeaways, which the lender viewed as excessive.”
As a result, the amount the homebuyer could borrow was reduced by £30,000 and they couldn’t get the mortgage they needed.
Providers have to assess your finances when deciding how much they’re prepared to lend you.
Usually that means fixed costs such as childcare, household bills and credit card repayments.
But lenders also calculate how much the average person spends on other areas of their life such as nights out and leisure.
While they don’t usually pay much attention to these outgoings, there is a chance they could delve in for a closer look.
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And that’s more likely to happen if you’re regularly spending more than average on particular things, warns James.
In the case of the client who heavily spent on takeaways, the lender decided this was happening often enough to be classed as a “fixed cost”.
That essentially meant it was marked as a monthly bill when calculating affordability, and affected how the size of mortgage available to the borrower.
James says: “If a borrower is regularly spending to excess in one area, it doesn’t matter whether they can afford it, lenders will almost treat it as an addiction.
“They think the borrower would not be able to stop spending in this way if times get hard and they need to, because they have become so accustomed to it.”
He adds: “Banks and building societies have to be seen as lending responsibly so they will reduce the amount on offer to borrowers in this situation to cover their risk.”
How big a mortgage can I get?
Banks will typically lend you up to 4.5 times your income for a mortgage.
This means couples who both work can often borrow more, as both their salaries are taken into consideration.
But this isn’t a hard and fast rule - lending is subject to affordability checks so providers can work out what level of monthly repayments you can afford.
The amount lenders expect borrowers to spend on leisure activities is relative to earnings.
A lender wouldn’t bat an eyelid at a person spending £800 a month on takeaways if they’re earning hundreds of thousands a year.
However, someone on a more modest salary may find that lenders question their behaviour.
James says: “If a borrower is spending 30-40% of earnings in one area of their lifestyle, it could become a problem.”
Lenders also put buyers’ earnings through a “stress test” to see if they would be able to cope if interest rates went up and their repayments increased.
How can I boost my chances of getting a mortgage?
James’s advice for anyone expecting to apply for a mortgage in the near future is to carefully examine money habits.
Lenders will usually look back over current account activity over the past few months before a mortgage application is made.
James said: “Make sure your bank statements are as clean as possible with no excessive spending.”
He added that lenders have generally become more relaxed around buyers’ affordability as Covid restrictions have eased, making it easier for more borrowers to get the mortgage they want.
But that doesn’t mean you shouldn’t take some simple steps to improve your chances of getting the mortgage you want.
One mortgage expert says it’s worth checking your credit score before applying for a home loan.
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And it’s important to remember all the extra fees you need to save for on top of your deposit, such as solicitors and stamp duty.
Meanwhile, tiny mistakes could cost you your dream of homeownership - such as not being on the electoral roll and not having a credit card.
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