Before you start looking for your dream home, you need to know how much you're able to borrow in order to fund it. Generally, how much you can borrow will depend on four things. The amount you want to borrow in relation to the property's value (also known as the loan-to-value or LTV), your credit score, your income and your outgoings.
You should be able to comfortably afford the mortgage when you take it out so that unforeseen events (such as interest rate rises or redundancy) don't put your home in jeopardy later on. Remember, although the lender or mortgage broker is responsible for checking whether you can afford a particular mortgage, making sure you can easily manage the repayments you're taking on will give you valuable peace of mind before you apply.
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All mortgages require some form of deposit, but they are not directly linked to how much you could borrow. The loan to value or LTV of your mortgage, means how much the mortgage is in relation to the value of the property. So, if you have a £50,000 deposit for a £200,000 property, the mortgage you need would be £150,000 – 75% of the property's worth, or 75% loan-to-value.
Your credit score has a big part to play in how much you can borrow. In the most extreme cases a low credit score could prevent a mortgage lender from even considering you or, more likely, a low score could mean that the lender uses a lower multiple of your income to decide how much you can borrow.
That’s why you’ll want to make sure your credit score is up to scratch before you even consider applying for anything. Our guide on improving your credit rating will be able to help you with this.
Income is crucial for determining how big a mortgage you can have. Traditionally, mortgage lenders applied a multiple of your income to decide how much you could borrow. So, if you earn £30,000 per year and the lender will lend four times this, they may be willing to lend £120,000. (Remember that each lender will have different criteria and will offer different income multiples, so always do your research.)
When it comes to households with two incomes, some lenders offer a choice:
• The option to add the second income on top of the multiple, so if the main breadwinner earns £30,000 and the second person's income is £15,000 a lender might offer 4x the first income, plus the second income (4 x £30,000 + £15,000 = £135,000)
• A slightly lower multiple for two incomes than for one. So £30,000 + £15,000 = £45,000. Then £45,000 x 3 = £135,000
Many lenders now only use income multiples as an overall maximum that they will lend, conducting a detailed affordability assessment to decide how much they are willing to lend. This is something that has become particularly strict following mortgage regulations introduced in 2014.
If part of your income is comprised of a bonus or overtime, you may not be able to use this, or if you can, you may only be able to use 50% of the money towards what the lender deems as your income. All income you declare in your mortgage application will need to be proven – usually through you providing your latest pay slips, pensions and benefits statements.
Your regular household expenses, debts and insurances can all affect what a mortgage lender will let you borrow. Outgoings that a lender may take into consideration include:
• Loan and credit card repayments
• Council tax
• Domestic utilities (gas, electricity and water)
• Insurances (buildings and contents, car, life, payment protection)
• Car running costs (tax, insurance)
• Child maintenance payments
Some lenders also apply a reduction to the amount you can borrow for the number of children you have (assuming an average monthly expense), while others have started to take things like discretionary spending into account. They'll also require you to prove that you can afford the repayments in the event of an increase to interest rates, so make sure you have suitable means to ensure that – ideally through reducing your unnecessary expenditure – as this could have a clear impact on the amount of mortgage you'll be able to borrow.
When it comes to households with two incomes, some lenders offer a choice:
Many lenders now only use income multiples as an overall maximum that they will lend, conducting a detailed affordability assessment to decide how much they will actually let you borrow. All income you declare in your mortgage application will need to be proven, usually through you providing your latest pay slips, pensions and benefits statements.
It is possible to borrow five times your salary but only if you meet the lenders affordability tests and requirements for loan-to-value and minimum salary. To get a mortgage of this scale, you’re likely to need a deposit of at least 10%, if not more to have access to a wider range of mortgage deal and may face a maximum lending cap. Some borrowers may look to lengthen their mortgage term to thirty years help make monthly payments more affordable.
This depends on both how regular your overtime is and the attitude of the lender concerned. Some lenders will not consider any additional income you may receive through overtime, while others may accept all or 50% of this income. Any earnings from overtime to be included as part of your mortgage application will need to be regular or guaranteed and be evidenced.
If however overtime is something you only get occasionally then the lender may not take it into account at all. This is where a mortgage broker can help – they will know which lenders are more likely to accept overtime as part of their income calculations.
Prior to 2014 lenders would use an income multiplier to help decide how much you could borrow on a mortgage. Now lenders need to show that the mortgage is affordable and that you could continue to pay your mortgage should there be a rise in interest rates, or you have a significant change in circumstances such as losing your job or having a child.
Lenders also have regulatory restrictions that limit their new lending above 4.5x salary to a maximum of 15% of all new mortgage loans. This means lenders can be very specific in deciding exactly which borrowers they want for these mortgage deals.
To find out more take a look at our What are mortgage affordability checks guide.
Knowing how much you may be able to borrow is one thing, but knowing how much you can comfortably afford – and being confident in your ability to keep up with your repayments – is another. This is why you’ll need to carefully go through your outgoings, making sure to use a mortgage repayment calculator so you get an idea of what your repayments could be and whether you could absorb them in your current salary.
Bear in mind that if you’re moving to a bigger property there could be additional expenses to pay, and if you’re moving from rented accommodation into homeownership, your outgoings could change again, and that’s before we even get to the additional costs of moving (legal fees, stamp duty, conveyancing etc.). This means it’s vital to go through everything in advance to make sure you’re prepared for the impact on your finances.
Once you’ve tallied everything up, you can make a decision about the kind of mortgage you can comfortably afford. Though make sure to be realistic – it’s generally recommended that no more than 28% of your household income should go on housing expenses, so if your final total is above this level, it may be worth reconsidering.
Again, this all comes down to your own personal level of affordability, and how comfortable you are with being able to afford the maximum amount. Remember that the bigger the mortgage, the higher your repayments are going to be, so while it can be tempting to take the maximum amount offered – particularly if it means you can afford a larger property – it may be wise to exercise a bit more caution.
To drop a loan-to-value band you’ll need to secure a larger deposit or increase your equity, which will allow you to secure a smaller mortgage in relation to the value of your property. If you can’t afford a larger deposit, the only other way to secure a lower LTV is to buy a cheaper property, which would mean your deposit takes up a higher proportion of the property’s value and would reduce your LTV accordingly.
Our mortgage calculator can help you determine how much you might be able to borrow based on your salary. Just input your annual income and guaranteed overtime – together with that of the second applicant, if you’re applying for a joint mortgage – and you’ll be shown the minimum and maximum you may be offered. Remember though that income isn’t the only factor lenders will take into account when determining how much you’ll be able to borrow, so this should purely be used as a guide.
Once you have an idea of the maximum amount you’ll be able to borrow, you can start to compare different mortgages Our mortgage charts allow you to search for a mortgage based on your circumstances, giving an overview of the products available and helping you narrow down the options. You may want to speak to an independent broker for a more personalised look at the products available, too.
No, you won’t need to undergo a credit check when using mortgage calculators, as the only information you’re inputting is your basic salary – no other personal details are required. This means there’ll be no searches appearing on your credit report and no impact on your score, but if you’re concerned that your current score may be holding you back from getting the best deals, now’s the time to work on improving it. Find a free credit check service.
How much you’ll need to earn for a particular size mortgage varies from lender to lender, and they’ll often be more concerned about how much you can afford to pay back rather than a straight income calculation. That said, 4.5x your income is generally the maximum amount you’ll be able to borrow, so here we go through a few scenarios to help you get an idea of the amount you could be offered.
Our calculator shows that for a £100,000 mortgage you will need to earn at least £22,500 as a single applicant or between you if you’re applying for a joint mortgage. Bear in mind that a £100,000 mortgage can result in different LTVs and therefore different rates, depending on the amount of deposit you have and the overall value of the property.
For a £250,000 mortgage you will need to earn at least £56,000 as a single applicant or between you if applying as a couple, while for a £500,000 mortgage you will need a earn at least £111,500 as a single applicant or as joint income for a shared mortgage.
Let’s say your ideal home is worth £225,000 and you’re able to put up a £25,000 deposit. For a £200,000 mortgage you’ll need to earn a minimum of £44,500, though to be more comfortably offered this level of mortgage you’d probably need to earn closer to £50,000 or above. It’s also worth noting that this mortgage would equate to a loan-to-value of 88.9% in this scenario, which means first-time buyer mortgage deals would be your best bet.
Need to work out your LTV, use our LTV calculator.
If you’re earning £60,000 a year, you may be offered a mortgage of between £180,000 and £270,000, depending on your lender and financial circumstances.
Based purely on your income, then yes, you’d be able to buy a house when making £40,000 a year, and you could be offered a mortgage of up to £180,000. However, whether you’d be accepted for such a mortgage depends on a whole range of other factors.
This depends on the amount you’re able to put down as a deposit. If you’re a first-time buyer and only have a 5% deposit to put down, you’d need to be earning around £32,000 to be offered the £142,500 mortgage required for a £150,000 house. If on the other hand you could put down a deposit of 10% you might only need to earn £30,000, or if you had a 20% deposit, you’d need a smaller mortgage of £120,000 and therefore a lower salary of around £27,000. Remember that if you’re buying jointly, the income requirements can be split between you.
This would depend on the term of the mortgage and the interest rate you’re paying, but if we take a typical 25-year mortgage at a rate of 2.5%, your monthly repayment on a £100,000 mortgage (based on capital and interest repayment) would be £448.62. You can find more repayment scenarios by heading to our mortgage repayment calculator.
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