One of the most searched-for terms on the What Mortgage website is ‘how much can I borrow’?
Getting a grip on how much money is at your disposal is vital when helping you to establish what kind of properties are in you price range. This can enable you to refine your property search and determine whether you need a bigger deposit.
So, it makes complete sense this question is forefront in your mind.
Lenders have a calculation they use when assessing how much to lend a potential borrower. They look at that person’s annual income and multiply it by a set amount – however, this amount can vary from lender to lender. Typically, it’s 4.5 – so, on this basis, if your income each year is £30,000, you could potentially borrow £135,000.
If you are making a joint mortgage application with your partner, family member of friend for example, the combined incomes will be used in the calculation. So, add in another salary of £30,000 to the above example and the calculation will be 4.5 times £60,000. That’s the grand total of £270,000.
This may all sound very straightforward, but there’s more to it, unfortunately. Each lender is different and therefore their lending calculations can vary wildly. At the moment, there are some providers who will only let customers borrow 3.5 times their income and others who will go as high as seven times.
What’s more, there are also many other factors they like to take into consideration. For example, do you sometimes get a bonus or commission? Do you sometimes earn income from overtime, a side hustle or second job? What about your outgoings? Does a big chunk of your salary go on childcare? Are you paying off a big debt? This will also be assessed in great detail. And each lender will have a different set of a criteria or boxes which need ticking.
It means what you could borrow from one lender may be a lot less than with another.
How do I get an accurate figure?
To pin down an accurate figure of how much money is available to you, most people choose to use a broker or intermediary to help them find a mortgage.
This is because brokers have access to many mortgage providers, saving you the job of having to navigate hundreds of different calculations and affordability rules.
If you want to get a general, ball park figure of what you can borrow you can use our affordability calculator.
If you click on this link you can use the calculator to establish your borrowing power. You can also go further and find out what mortgage deals may be available to you, what rates you would be eligible for and how much this will cost you in repayments each month.
