One of the first questions potential homebuyers ask me is, “How much can I borrow?” The answer is that everyone’s situation is different, and so, therefore, is their borrowing potential.
The maximum mortgage you are offered depends on various factors such as income, debts (including loans, credit cards and HP agreements), deposit size and property value. Lenders tend to assess applications on a case-by-case basis, so there’s no one-size-fits-all answer as to how much you can borrow.
Read on for our useful guide, which will give you an idea of how these factors affect borrowing and what that might mean for you.
For one-to-one mortgage advice in Essex and beyond, please contact Goldmanread.
What determines how much you can borrow for a mortgage?
To understand how much you could borrow, it’s important to understand how mortgage lenders assess you. They carry out detailed affordability assessments to determine how much they are willing to lend.
It’s different for each lender, but a typical affordability assessment looks at:
- Annual income
If you are employed, they will consider your basic salary and additional income like overtime, bonuses and commission. If you’re self-employed, many lenders will consider a combination of salary and net profit/dividend income. - Financial commitments
The mortgage lender will also consider any outstanding loans, credit cards, and other outgoings, such as child maintenance payments, to ensure you can meet the monthly repayments. - Credit history
Lenders will look at your existing debts and conduct a full credit check to confirm your credit history. Any history of bad credit, e.g., missed payments on debts or utilities such as council tax, will affect how much you are able to borrow. It’s a good idea to get a copy of your credit report in advance from one of the three main providers: Experian, TransUnion, or Equifax. - Deposit
The higher the deposit, the better. This dictates the loan-to-value (LTV), which is the percentage of the loan compared to the property’s value. From a lender’s point of view, there is less risk the lower the LTV. Generally, borrowing over 90% LTV will restrict the amount you can borrow. Loans below 85% LTV tend to attract more attractive mortgage rates.
How accurate are mortgage calculators?
An online mortgage calculator is suitable for getting a rough idea of monthly payments and how much you could borrow, but they don’t take into account your personal circumstances. There’s nothing like the advice of a mortgage broker who can help you understand all the options and find the best deal for your needs.
Are your monthly repayments determined by your salary?
Your monthly repayments are calculated based on the loan amount, interest rate, loan term, and whether you’re repaying just interest or both interest and the loan itself. Once you sign a mortgage agreement, the monthly repayment amount is set in stone for the duration of the term and is not affected by your salary.
The size of your monthly mortgage repayments is influenced by your salary; however, lenders use your income to assess how much you can afford to borrow.
Lenders make affordability calculations using your total outgoings to assess your monthly spending. They will then stress test these outgoings against your monthly income to ensure you can afford the new monthly mortgage payments.
Mortgage affordability in terms of salary
There is no simple answer to how much you can borrow based on your salary alone. Lenders use a mortgage affordability calculator to determine the amount they are willing to lend, using details including annual salary, mortgage term, property value, deposit, and outstanding debts.
If you meet their criteria, many mortgage providers lend up to 4-5 times your annual income, although this may be higher if you are in a professional occupation such as a lawyer, doctor, or accountant.
How much can I borrow on a £30k salary?
Based on a typical income multiple of 4-5 times salary, you could potentially borrow £120k to £150k on a £30k income, providing you meet the lender’s criteria.
How much can I borrow on a £40k salary?
Based on 4-5 times salary, you could potentially borrow £160k to £200k on a £40k income, providing you meet the lender’s criteria. If the borrower is in a professional occupation, it could be as much as £240K.
How much mortgage can I get with a £70k salary?
Generally, the higher the borrower’s salary, the more lenders are willing to offer. Many will consider loans of around five times annual income based on a £70K salary.
It is very important to bear in mind that how much you can borrow depends on more than salary alone. The figures quoted above are estimates based on typical income multiples and do not account for individual circumstances. Lenders will make an offer based on many other factors such as credit history, financial commitments and deposit size.
It’s important to seek advice from a mortgage broker like Goldmanread or a lender before making any financial decisions.
How can you boost your mortgage affordability?
There are a number of ways in which you can boost your mortgage affordability:
Adjust the mortgage term
If you can extend the term of your mortgage from, say, 20 to 25 years, this makes the monthly repayments cheaper.
Maximise your income
This, of course, is easier said than done. However, if you have other sources of income, such as investments, dividends, or rental income, many lenders will consider your combined income when calculating how much you can borrow.
Reduce your outgoings
Look for ways to reduce your monthly outgoings by paying down debts and budgeting. Hold off on taking out any new lines of credit before making a mortgage application, as it could affect your credit report.
Save for a larger deposit
How much deposit you have directly impacts the mortgage you can afford. The lower the loan-to-value, the more generous a lender will likely be. If you can’t currently get the mortgage you need, consider saving more of a deposit and trying again further down the line. Or, if you are desperate to get on the property ladder, consider investing in a cheaper property to start with.
Look at getting a joint borrower sole proprietor mortgage
There are some lenders who consider joint applicants, which can boost how much you can borrow. These are typically aimed at the first-time buyer market, where a parent or close relative comes on the mortgage as a second applicant.
Before embarking on a joint borrower sole proprietor mortgage, it’s important to discuss your options with a mortgage broker to get a good idea of how much you can afford.
How can Goldmanread help you get a mortgage?
At Goldmanread, we have been helping people find the right mortgage with the most competitive interest rates for over 15 years.
We can help you determine your borrowing limit before seeking the best interest rates and mortgage deals. We can access a wider range of lenders offering potentially better rates with lower monthly payments.
To find out more about our services and get started, please contact us today.
You may also be interested in:
