Up until a few years ago, mortgage lenders assessed an applicant’s borrowing capacity using a multiple of their gross earnings; in the case of a joint applicant, the qualifying mortgage amount was calculated using two-and-a half times the first income plus the second income. All lenders now use the ‘Net Disposable Income’ (NDI) approach, which looks at the applicant’s ability to repay based on their new disposable income.*Calculator is used for illustration purposes, subject to lender criteria, terms and conditions apply.
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As a general rule, a lender will advance funds up to the point where the monthly repayments do not exceed 35% of the applicant’s net disposable income. The use of the NDI approach provides for a more realistic assessment of an individual’s capacity to borrow
and, unlike the income-multiples calculation, takes into account changes to personal incomes taxes, interest rates and other loans/ savings.
Under the NDI method, two applicants on the same income may qualify for different loan amounts depending on whether or not each has other loans outstanding. For example, a typical limiting factor on maximum loan amounts would be the existence of a car loan.
Another crucial factor at present is the ability to repay based on historical / last six months rent payments and/or monthly savings evidential. This is known as repayment capacity.
There is no simple formula which borrowers can use to estimate the amount they can borrow as each of the main Irish banks use slightly different borrowing criteria. Even the on-line calculators currently available from the various lenders are pretty limited as they tend not take into account repayment capacity abilities for example.
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