Responsible lending means ensuring that the borrower is able to repay any loan that is made to them without undue hardship.
If you already have a loan and are having difficulty then you might find the following information useful:
A recent FSA survey has suggested that mortgages should not be more than 35% of your post tax earnings. The figures in this worksheet are suggested figures. It is important that you do not accept a loan repayment that is higher than 50% of your disposable income. Firstly you need to calculate your disposable income.
What is your average monthly household income?
This is the earnings or benefits that you and your partner has coming in each month. You cannot include lodger’s income but you can include any money that they pay you.
Monthly expenses are THE TOTAL OF 1 TO 5 BELOW:
1) Rent/Mortgages, Electricity, Water & Gas Bill
2) Food & Groceries
3) Child or Elder Care
4) Car & Other Insurances
5) Other Miscellaneous Expenses
Calculate all your expenses of whole month which is given in Figure A & deduct them from your net income to check your affordability the loan. The amount you have in your hand after these expenses is like the same you can afford for the monthly installment of your loan.
Your monthly loan repayments shoud be less than half of figure C. If the loan repayment is more than half then you may having difficulty in repaying the loan. If the loan repayments are more than half then you should either consider reducing the amount of loan.
Remember! The lender has no way of checking these figures and it is up to you be honest with yourself.
If in doubt, seek Independent Advice !