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Letter E
Existing liabilities
Debts, other than an existing mortgage such as hire purchase, personal loans,
school fees etc.
It is common for lenders to deduct the annual cost of such liabilities before
multiplying your income up to calculate the amount you are able to borrow
therefore when you are taking out a mortgage these liabilities can impede the
amount you could borrow so it is important to keep them down if possible.
Some people for one reason and another also keep their existing mortgage if this
is the case then the lender will also want to take this into their calculations,
there are two ways that they will do this:-
1. Once they have calculated the income for borrowing they will deduct the
capital of the existing debt eg. existing debt of £30,000, income of £40,000, no
other liabilities = £40,000 times 3 (common lender income multiple) comes to
£120,000 less the existing debt of £30,000 means that the applicant would be
able to borrow a further £90,000.
2. If the applicant was to rent out the existing property which has the existing
mortgage secured on it (this type of practice is becoming popular nowadays)
subject to the rent exceeding a certain proportion of the interest on the
existing debt this formula ranges from 125% to 150% of the mortgage payment then
the lender is happy to ignore the existing mortgage.
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