How much can I borrow on a mortgage?
Published 18th August 2017
So, what mortgage can i afford?
To calculate how much you can borrow on a mortgage it’s important to understand there are numerous factors that will affect the calculation. I have covered them below as in depth as possible to help you estimate the impact they may have on your application, but really to obtain an exact figure you are best to make an enquiry and we’ll refer you to an expert to work it out for you.
- Maximum mortgage calculator
- The difference between lenders
- Buyer type / Mortgage type
- Loan Size
- Income type
- Credit score / history
- How much you can borrow on secured loans
- Top tips: improve your maximum mortgage figure
Maximum mortgage calculator
To calculate how much you can afford to borrow, the mortgage calculator below will take into account your income and outgoings and apply different multiples depending on whether you might qualify for a mainstream or specialist lender.
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NOTE: in certain circumstances, specialist lenders can exceed 5x income (for instance if you are a high earner), as some underwriters have a level of discretion to stretch the affordability model. If you are an individual earning over £50k a year this may be for you. Please get in touch for a quote.
Please bear in mind this is just a rough illustration, and as described above every lender calculates things differently – this calculator of course doesn’t consider credit history or credit score, nor does it distinguish between the different types of income that are acceptable with different lenders, which are all factors effecting maximum mortgage you can borrow.
Please also bear in mind that this calculates maximum mortgage amounts for first charge residential mortgages. As mentioned in the rest of the article, if you are looking to borrow more money against a property you own already, you may be able to borrow far more on a secured loan than a remortgage. For secured loan maximum borrowing, or for an accurate figure and an official the mortgage certificate in principle, please make an enquiry and an expert will help you out.
Every lender has a different opinion
Every lender is different, they all have their own affordability models and policy on who they will lend to, and how much. Many use automated systems that calculate based on a borrowers credit score, others use a more manual process, but the fact is - the same borrower may borrow a hugely different amount depending on which lender they approach. Traditionally lenders talked in terms of income multiples and loan to income ratio (LTI), and would tell you what mortgage you can afford based on your salary alone, lending up to a maximum of say “4x income” without really factoring in credit commitments or month to month affordability. So, someone earning £20k borrowing £80k would have an LTI of 4x.
Nowadays, especially since MMR we have seen real changes in lender perception of what is deemed affordable and many have completely changed their processes, some even looking through bank statements at regular outgoings to establish net disposable income and equate the maximum loan repayments against this figure. Other lenders continue to set their policy around income multiples and deducting any monthly commitments from the total. In any case, lenders and others in the industry continue to describe maximum borrowing in terms of LTI and those using affordability based models will still have lending caps at 4 or 5x income for example. There are one or two lenders suggesting they may exceed their 5x cap and go up to 6 or 7x income in specialist circumstances, for example professionals who are due large increases in salary in a relatively short period (doctors/solicitors), or perhaps those who will have a guaranteed lump sum payment due and already have a large deposit. Getting these loans approved is extremely difficult and rare however!
It is far easier to describe in terms of LTI because most affordability models are complex and diverse, so what may be relevant for one borrower will not be for another, and the point of this article is to give guidance on the maximum mortgage size you may be eligible for not dissect each and every model in use!
That said, the same borrower on £20k may be lent to a maximum of 3x income with lender A = £60k, 4x with lender B = £80k, and 5x with lender C = £100k. The impact of this is clear, and all borrowers would be well advised to shop around for the best model if they are looking for properties at the higher end of their range.
Buyer / mortgage type / purpose
Whether you are a first time buyer; a homeowner remortgaging, purchasing, or borrowing additional funds; whether it is secured on a residential or buy to let investment property; or perhaps if you’re considering a secured loan - all these will impact on the lenders you can go to, the models they use, and how much mortgage you can qualify for.
First time buyers can be hard done to when it comes to maximum borrowing, with some lenders restricting loans more than they would for other borrowers to negate the perceived increased risk lending to those taking their first ever mortgage. However, there are lenders that place no additional restrictions and will still approve loans up to 5x income providing all usual criteria is met, it just means the number of lenders to chose from will be less.
Homeowners remortgaging / purchasing are generally subject to the standard affordability rules as outlined above, where lenders will restrict to 4 or 5x income. Generally affordability tends to be the same whether borrowing for a remortgage or a purchase.
Homeowners borrowing additional funds on a remortgage are typically considered in the same way, however there are often restrictions placed depending on the purpose of the remortgage - for instance if you are borrowing for debt consolidation a lot of lenders will only allow up to 85% loan to value (LTV), whereas one or two lenders will allow up to 90%. The same goes for those borrowing for business purposes or to finance an investment, where some lenders will decline to lend at all!
Buy to let affordability is calculated very differently to mainstream residential borrowing in that it is based on the rental income of the property. Most lenders will apply affordability models that require income to be 125% of the interest only mortgage payments (if the mortgage was 5% - some use different figures). So if the monthly mortgage is £500 then the rental income needs to be £625. Most lenders will require you to have a personal income of your own, however some lenders don't require experienced landlords to have an income at all. First time buyers without a residential property wanting a buy to let will be required to evidence affordability based on their own personal income as if it were a residential mortgage - this is to avoid the issue of someone buying a property to live in that they otherwise cant afford, by pretending its a buy to let.
Secured loans stand alone as the most flexible type of finance of the lot, and currently it is possible to borrow well over 5x income in the right circumstances, often up to 8x or more. At the time of writing secured loans are going through a state of change and will soon fall under FCA regulation, so the allowable lending criteria is likely to change the landscape of secure loan borrowing, but for now as a non-regulated product, lenders are allowed greater freedom to stretch and exceed what may be deemed affordable by a mainstream regulated first charge mortgage lender.
The size of the mortgage can impact how much lenders will offer. Typically, borrowing will hit a cap with most lenders based on certain thresholds, which are often £500k, £750k, £1 million, £1.5 million, and so on. The FCA has now placed regulation on lenders to have no more than 15% of their new lending over 4.5x income, and so some lenders have taken action to restrict all loans over £500k under this level - watch out for this if you are looking for a large mortgage.
“How much mortgage can I afford on my salary?”
The type of your income will play a part in establishing how much you can borrow, as not every lender will take every penny you earn into account. The table below should explain what lenders will consider depending on the type of income you have:
|Income Type||% taken into account|
|Basic employed income||100%|
|Allowances (car, shift, London living etc.)||50-100%|
|Income Type||% taken into account|
|Salary + dividends||100%|
|Income Type||% taken into account|
|Bursary / grant||0-50-100%|
|State benefits (child benefit / tax credit etc.)||50-100%|
|Overseas income (e.g. earned in dollars / euros / yen etc.)||100%|
Credit score / history
Your credit history can have a huge impact on the maximum you can borrow, as it not only affects if the lender will offer you their maximum borrowing, it affects which lenders will consider your application in the first place. Often adverse credit or a low credit score means that mainstream lenders wouldn’t consider any amount of borrowing, thankfully there are specialist lenders who are happy to approve mortgages for those who feel like they wouldn't have a chance.
It really depends on what the issue was and when. The more severe and recent the issue, the higher the likelihood it will impact mortgage affordability and the lenders that will consider you. Most borrowers are surprised at how flexible the specialist lenders are these days, with people who have been bankrupt now being able to get mortgages up to 95% LTV, and depending on the date of the bankruptcy can even borrow up to 5x their income.
Typically the specialist lenders will limit borrowing to 4x income, but there are some that will go up to 5x and even 6x in the right circumstances - your broker should look at all the options for you and establish who the best lender is likely to be based on your situation.
Generally the amount of deposit you have makes little difference to how much you can mortgage for, as it doesn't really impact the affordability models (calculations are based on the income / expenditure as explained above). Of course, it does impact what house you can afford to buy as the more cash you put in on top of your maximum mortgage, the higher price you can pay! More deposit does also make a difference when borrowers are looking to build a case for specialist lenders to approve 6-7x income applications (as you’ll have a lower LTV and be lower risk), and also goes some way to improving credit score - the lower the LTV the better the score, so those individuals who may score lower with a small deposit may find they can actually borrow more if they put more deposit down.
Maximum borrowing with secured loans
The maximum figure you can borrow on a main first charge mortgage can be completely different to how much you can borrow secured loan wise, and one of the main reasons for this is that, at the time of writing, loans secured on a property are not currently under FCA regulation (subject to change), so affordability rules are different. Most secured loan lenders will not factor the main mortgage into the total loan to income (LTI) calculation and most will take just the monthly payment against the net affordability - so if you have a low mortgage payment because it’s interest only or on a great rate, then you might be surprised at how much extra a secured loan lender will offer when compared to a full remortgage with additional borrowing.
Top Tips: How to improve your maximum mortgage figure
If you are looking to stretch yourself and borrow the absolute maximum mortgage your income will allow, for that dream home or to repay and settle existing debts, then of course caution needs to be exercised - make sure the monthly payments are not only affordable now, but in future if and when rates change. Repayments on current record low rates are not going to stay low forever, so we urge anyone looking to make the most of their LTI to consider the impact of a rate rise on lifestyle and monthly budgeting. To ensure you are offered the most from your income there are some steps to take:
- Improve your score
Sounds simple, and it is! Credit score has a large part to play. Improving your score can be done by repaying old adverse credit debts, closing old accounts and cards, maintaining payments, repaying current unsecured borrowing etc. Read more here…
- Increase deposit
The lower the LTV the better your credit score with that lender is likely to be. Often we find that customers applying at 90% are offered 4x income, whereas 85% they are offered 5x income - it is always worth trying to lower the LTV to check the impact.
- Pay off debts
This will increase credit score as the amount of used credit compared to available credit will reduce. It will also mean the lenders will view you as having an increased monthly disposable income as you don't have any other financial commitments and thus you will be more able to afford a larger mortgage.
- Cut down on spending
Lenders who monitor bank statements to establish regular spending in order to equate disposable income are more likely to penalise anyone with regular monthly outgoings toward certain things, especially gambling or other higher risk items - many lenders actually decline creditworthy customers who have gambling activity on their bank statements because this activity makes it hard to predict the impact on your ability to repay, and they can perceive you to be of increased risk.
- Finalise accounts (self-employed)
If you are applying after the end of a tax year but have not yet finalised that years’ accounts, then do it! It is a fact that the days of self-cert mortgages are over, and no longer can the self-employed declare less profit but still borrow against a higher actual income. Those who have had a good business year but who want to borrow more may have to go against what their accountant might suggest and declare fewer expenses.
- Speak to your boss (employed)
If for instance, you are on a temporary contract - ask for a permanent one! Or, if you earn through regular bonuses, allowances or overtime - it might be worth asking your boss if your contract can be changed to add these regular incomes into your basic. It sounds unorthodox but we’ve seen it happen! As lenders will take 100% of a basic but some only 50-80% of bonus or overtime (even if confirmed as guaranteed), asking your employer to include it in your basic can make a huge difference - then with a new contract in hand many lenders will be happy to go on the contract terms without having to wait for your first payslip to come through (some will require new payslips). Often if they confirm it is guaranteed then it is literally just a paper exercise to change it over and no skin off your employers back being as they are paying you the same every month anyway.
If you want to know if you can get a mortgage with late payments (or missed payments - arrears), then get in touch and an expert can review it all for you!