How much can I borrow on a mortgage?
If you’re hoping to buy your first property or move home, the first question you will likely think is ‘How much can I borrow on a mortgage?’
We know this because it is one of the most common questions we get asked!
Once you know how much you can borrow you can start your property search, so it’s important to get a mortgage agreement in principle. If the reality of what you can afford doesn’t match your expectations you might have to reconsider the type of property you’re looking for and/or the area you’re looking in.
How much can I borrow on a mortgage?
Lenders all have their own individual affordability calculations and their own criteria. No mortgage lender is the same which is why it’s important to get advice from a whole of market mortgage broker, who has access to all lenders and expertise to know which lenders to approach for you. Many factors are taken into account when lenders calculate how much they are willing to lend to you. This is to make sure you can comfortably afford the mortgage you are applying for.
Income
The starting point for any affordability calculation is your income e.g. Employed income, self-employed income, second job, benefit income, overtime, commission, bonus or any other guaranteed or regular income.
Lenders no longer use income multiples to determine how much they will lend, but typically someone with minimal commitments and dependents might be able to borrow 4-5 times the household’s annual pre-tax income. Each lender will be different however and when income levels are higher (often £60,000+) some lenders will significantly increase the lending available if it can be clearly demonstrated there there is sufficient disposable income to cover the proposed mortgage and living costs. So, often the more you earn the further lenders will stretch your income.
Other Factors
This includes committed expenditure such as loans, credit cards, HP agreements and child care costs. Lenders also take into account the average living costs based on figures they obtain from the Office of National Statistics (ONS) and your family setup will often affect how much you can borrow E.g. Dependents, Location, Joint or Sole applications.
Other factors such as loan to value, which is how much you are borrowing compared to the value of the property you are buying can also impact borrowing. The mortgage term can also play a big part too (how many years you pay the mortgage off over) and its important to have a conversation about this with your mortgage broker.
Credit History
If you’ve had missed or late payments on credit commitments as long ago as seven years ago, you may have adverse credit data on your credit file and this may affect your credit score. This can reduce a lenders willingness to lend, reduce the amount they lend, increase the interest rate they’re willing to offer, or all of the these.
While how much you can borrow is important, knowing you can afford it is even more so. As such, working out your budget through a thorough analysis of income and expenditure is vital to ensure the long-term commitment you plan on taking on remains affordable.
There is, unfortunately, no ‘one size fits all’ calculation when it comes to understanding how much you can borrow, but a good mortgage broker will be able to identify the best lenders available to obtain the maximum mortgage available and also ensure it’s affordable to you.
If this has got you thinking, we’d be delighted to help. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.
Undray Griffith – 15th September 2023
