As you probably know by now, the answer is not straightforward but thankfully you have come to the right place. In reality the best thing to do is fill out our Mortgage Enquiry Form. However, the following information should also be helpful and you can also use the Monthly Repayment Calculator to see what your repayments will be on different size mortgages.
Can I borrow 4 or 5 Times My Salary?
Most mortgage calculators out there are based on 4x income. However, some lenders will allow you to borrow multipliers of your salary higher or lower than this. For example, if you were earning £40,000 a year, some lenders might allow you to borrow £200,000 – before any other financial commitments are taken into account. Adding this borrowing amount to the deposit you’ve got will help guide you towards the kind of properties you can afford.
In practice, lenders will base the maximum borrowing amount on an affordability assessment which takes into account your credit score, your outgoings and expenditure. This may give a lower maximum loan amount than shown in most calculator
Don’t Pay Too Much Attention to Calculators
As we said, the best thing to do is fill out our Mortgage Enquiry Form. This will allow us to give you a more accurate potential amount than any calculators on general websites.
What is Affordability
When getting a mortgage, you shouldn’t only focus on the absolute maximum you can borrow, but on how monthly mortgage payments will affect your budget and what you can afford to pay comfortably. Our ‘Monthly Repayment Calculator’ can help by showing you what your monthly payments would likely be for particular rates of interest, based on the value of the property and the size of your deposit. Again, as a rule of thumb, the larger your deposit, the lower the interest rate is likely to be.
My Credit Score
Any potential lender will run a credit check once they receive an application for a mortgage. They will look at your credit file to see how responsible you’ve been about paying your bills regularly and paying back debt like credit card repayments and loans. This is so they can be reassured about how likely it is that you’ll be able to pay your mortgage.
If you’ve got a poor credit history, there’s a strong chance that the interest rate you’ll be charged will be higher, as you’re a higher risk for the lender. You may want to increase the interest rate in the calculator to get a more accurate picture of what you might be charged.
If you’re planning on buying your first home, or trading up, it’s always advisable to check your credit record and get it into shape at least six months before you start looking for your new property.
How Do Lenders Assess Affordability?
The way lenders assess affordability won’t be exactly the same for each provider, but essentially, they follow the same principles.
Essentially, each mortgage lender has their own mortgage calculator and their scorecard will look at things like:
- The amount of money you want to borrow
- How much deposit you have
- Your employment status and job security
- Your income – and lenders may view things like overtime, commission and bonuses differently from basic salary as they’re not guaranteed
- Your outgoings – the money you spend on bills and on your lifestyle
- Any existing debts
- Your credit report
When looking at your credit report, it’s not just your overall score that potential mortgage lenders consider. They’ll also look in detail at:
- Any other recent loan or credit applications – if you’ve been applying for lots of loans recently this could signal financial problems.
- Your debt-to-income ratio – to see how much of your income is used to pay debts.
- Your credit utilisation ratio – this shows how much of the credit available to you is already being used. Most lenders prefer a ratio of under 30% as it shows you’re not having to borrow up to your limits.
- Your payment history – this shows how responsible you are at paying back debt on time. Even things like paying your credit card bill a few days late can have an impact.
- Your credit history – if you have bankruptcies, County Court Judgements (CCJs) or debts awaiting collection, these will give the impression that you’re a risky borrower.
- If you have a dispute – If you’re disputing something on your credit report, ideally you should get it resolved before you apply for a mortgage.
Lenders are likely to want to see your bank statements for the last three to six months to show them what your spending is going on and how well you manage your money and finances. You’ll need proof of earnings too. You could also provide information about your savings accounts and other assets like shares, on your application form, as evidence of your ability to save and manage money.
Lenders may also look to “stress test” your ability to pay. For example, if you have a two-year fixed mortgage with a low introductory rate, how well could you afford to pay when the mortgage returns to its usual standard variable rate? You can look into this yourself with our ‘Monthly Repayment Calculator’, to see how affordable your mortgage could be.
How Much Deposit Do I Need For a Mortgage?
In an ideal world, as much as possible. This means you’ll need to borrow less, so you’re likely to pay less interest overall. To see what kind of impact having a larger or smaller amount of deposit could make to you, simply change the deposit amount on the calculator. You’ll see the monthly amount you need to pay going up or down according to the size of potential deposit.
Some lenders will have different rates for 100% mortgages, 95% mortgages, 90%, 85%, 80% mortgages and so on. Being able to move down to a lower band could save you money over time. It’s worth checking to see if increasing your deposit, even by a few thousand pounds to help you switch to a different band, could positively impact your monthly payments.
Remember though, that your deposit isn’t the only factor that lenders consider when deciding what rate to offer you.
How Much Can I Borrow if I’m Self-employed?
This will vary between lenders but we have a lots of experience helping self-employed people.
Some lenders will expect to see at least three years’ worth of accounts. If you’ve got an accountant, then your accountant should be able to provide you with the necessary paperwork. If not, you’ll need to provide a solid record of your accounts yourself.
Other Costs to Consider
Don’t forget, as well as a deposit, you’ll need money for all the other costs that come with buying a home. For example, legal fees, surveyor’s fees and possibly stamp duty. Take all this into account when deciding what you can afford.