You might expect every bank to offer you roughly the same mortgage amount. After all, your income, deposit and expenses don’t change when you approach a different lender.
But banks can assess the same situation differently. Following my recent newsletter about whether rent could cover mortgage repayments, this is another useful question to explore: how much could the choice of lender affect your borrowing options?
Why Do Banks Assess Mortgage Applications Differently?
Most banks want to know the same things: how much you earn, what you spend, what you owe and how much deposit you have. They also look at the home you want to buy. But each bank has its own rules for deciding whether it can lend to you and how much.
For example, one bank may be more comfortable with your income if you work for yourself, while another may be more open to a smaller deposit. Having your deposit ready is a good start, but the bank still needs to see that you can afford the mortgage repayments alongside your usual bills and other debts.
How Can Your Income Affect Your Borrowing Power?
The income you receive and the income a bank uses in its assessment aren’t always the same. Overtime, bonuses, commission and rental income may be treated differently between lenders.
For example, someone earning a salary plus regular overtime may find that one bank recognises more of that overtime than another. A self-employed borrower may need financial statements and other evidence to show that their income is sustainable. For property investors, how rental income and existing mortgage commitments are assessed can also influence the result.
Why Can Borrowing Calculations Produce Different Results?
Banks generally check whether you could still afford your mortgage if interest rates rise. They do this by calculating repayments at a higher rate than the one you would initially pay, known as a test rate.
Test rates can differ between banks. A bank using a higher test rate checks your budget against larger repayments, which may mean it offers you a smaller loan. This can happen even when two banks advertise similar mortgage interest rates.
Banks can also assess your income and expenses differently. Together, these differences can change how much you may be able to borrow, even though your finances are exactly the same. For a buyer close to their budget limit, that could affect which homes are within reach, so it’s worth exploring your lending options before setting a firm price range.
Can Another Bank Help If Yours Has Said No?
It may be possible, but the reason for the first decision matters. A decline linked to one bank’s treatment of your income may leave room to explore another lender. A different lender will still need to be satisfied that the loan is affordable.
If repayments would stretch your budget, the next step may be to reduce debt, build your deposit or adjust your purchase price. As a Mortgage Adviser I would first work through what’s holding the application back, then consider which options are realistic.
Is the Biggest Mortgage Offer the Best Option?
A higher borrowing limit can widen your choices, but borrowing more also means larger repayments. The amount a bank approves still needs to work with your own budget and plans.
Make sure to allow for rates, insurance, maintenance and ongoing savings. It also helps to compare interest costs, fees and repayment flexibility, especially if you may move home, renovate or change your working hours. A mortgage should remain manageable as your circumstances change.
How Can a Mortgage Adviser Help You Compare Lenders?
Here at Kris Pedersen Mortgages, we can compare how lenders would assess your circumstances and explain the options that may suit you. That includes looking at the borrowing amount, loan structure and any conditions you would need to meet.
If your bank’s answer has left you unsure about your next step, you’re welcome to get in touch. We can talk through your situation, explore whether another lender might suit you better and help you understand what steps to take next.