Page 4: Income and outgoings
When assessing the income of an applicant Britannia will count their gross annual salary (i.e. before tax and other deductions) plus 100% of their guaranteed bonuses and overtime pay. When Britannia is dealing with a self-employed applicant they will count net profit as income. This will be taken from end of year accounts providing profits have been increasing over a 3 year period. In assessing regular outgoings Britannia will include:
- hire purchase and bank loan repayments
- credit card payments
- maintenance payments (e.g. child maintenance)
- bank charges for an overdraft.
When calculating the applicant’s status, the total outgoings are subtracted from the total income. Building societies are primarily concerned with the disposable income of the household when determining whether to lend money and how much is appropriate to lend. Fortunately, Britannia find that Mr and Mrs Stevens’ outgoings are well under control. They do have a credit card but pay any outstanding balances at the end of each month. They have outstanding hire purchase for their car which has eighteen instalments of £105 per month left to pay.
Verifying the applicant’s information
Britannia now have sufficient information to feel confident in the Stevens’ financial status. However, it will not proceed with the application until further checks have been made by outside impartial sources.
All building societies today carry out a number of enquiries. The most important of these is to make a credit reference enquiry on every address the applicants have lived at over the last 3 years. The credit reference agency obtains:
- voters/electoral information
- credit information.
This information enables Britannia to confirm the identity and creditworthiness of the applicant. It may reveal that potential borrowers have failed to pay back debts in the recent past, or that they failed to disclose some of the current repayments of money borrowed elsewhere. The search also shows if an applicant has a recent record of bankruptcy. Credit referencing provides reliable and impartial information to give a supporting profile of the applicant. Britannia will also request information from the applicant’s employer showing the:
- income of the applicant
- regularity of any overtime, bonus or commission.
On the Stevens’ application form, Jane had declared that her gross income per month was just over £1,050. When Britannia checked this information with her employer, they found that Jane had just been given a rise so that her new monthly salary was £1,080. They were, therefore, more than happy with the details she had provided.
Britannia requires a satisfactory Employer’s reference from all applicants. Britannia writes off for this information rather than simply accepting evidence provided by an applicant. Britannia uses all this information to ‘credit score’ the applicant.