How much can i borrow for a mortgage? This is by far one of the most commonly asked questions when starting your search for a mortgage and with good reason. You need to know where to start!
Gone are the days when lenders would just base the amount you could borrow on a multiple of your income. Mortgage lenders now have to assess what level of monthly payments you can actually afford, after considering your income and personal and living expenses. In addition they will also look ahead and take into account any interest rate rises to ensure you can continue to afford your monthly payments in the future, this is known as a ‘Stress Test’.
Most lenders will cap the amount you can borrow at four and a half times your combined annual income however some lenders may offer more for certain professionals, those on higher incomes or on lower loan to value mortgage deals. For example, someone putting down a 25% deposit may be offered more than someone putting down a 10% deposit.
I’ve banked with them for years so surely, my bank will lend me the most money for my mortgage or at least the same as all other mortgage lenders?
Unfortunately, it doesn’t quite work like this, all lenders are different. You may get lucky and your own bank lend the most but how would you know without contacting each and every bank to check. But then there’s the question of whether your own bank offers the most competitive deal for you, that’s a whole other conversation.
For a single person earning £30k with a £200 a month car loan. There’s a huge difference of £15k between two high street banks. This could be the difference between buying a home and buying your dream home!
This is only a very simple example and amounts will vary a lot more or less depending on your individual circumstances but should give you an idea of the some of the difficulties in obtaining the perfect mortgage for you.
As part of a mortgage lenders decision on how much to lend they will carry out an ‘affordability assessment’. This is simply a case of them looking at how much you earn and how much you spend on a monthly basis. The types of things taken into account are listed below:
> Your basic income
> Any bonuses, commission or allowances
> Benefit income or child maintenance
> Pension or other investment income
Firstly, when applying for a mortgage you will have to prove any declared income for a lender to be able to use it. To do this they may ask for things like payslips, P60s, bank statements. Different lenders will use different amounts of types of income and will have specific requirements for proving this income.
> Credit card balances
> Loans, credit agreements, maintenance payments
> Other mortgages
> Insurances – life, car, home, pets etc
> Living costs – Utility bills, travel, recreation, childcare etc
Some expenses like gym memberships which could be easily cancelled may be looked at differently to a personal loan. Therefore bank statements may be requested when you apply to verify your outgoings compared to what you tell the lender. In addition they will also look at your previous payment history on any of these commitments so ensuring everything is up to date and on time is a great way to open up your options.
> Future interest rate rises
> Job losses
> Life event such as having a baby
> Ability to work due to illness
It’s important you plan ahead and think about how you could continue to maintain your payments if you had an unexpected drop in income. For example, building up your savings is a good starting point but for extra protection it may be worth considering Income Protection. Income Protection
There are tonnes of mortgage calculators out there, tonnes! Some more advanced than others. And these can be a good starting point to give you a rough figure to work from. But it will just be a rough figure. Most won’t take into account things like your credit history, monthly commitments, dependents etc so can result in this not being a true reflection of your lending ability.
Most banks and building societies will also have their own calculators which will give you an accurate figure of what they are willing to lend but with 100’s of lenders out there it might take a bit of time to look at them all. Halifax Calculator
Try ours now for a starting point.
Some banks or lenders don’t have calculators online, so with these ones you’d have to book an appointment. This can be very time consuming but hey if you’ve got hours and hours of spare time then why not, least that way you’ll know for definite, you might save yourself on any broker fees and then all you’ve got to do is sift through thousands of lenders deals to make sure you’re getting the right one for you.
Ok, so maybe the last suggestion was a little sarcastic but in reality, that is what a broker does for you. They do the running around, speaking with every lender and checking thousands of deals to ensure you get the right advice.
Speaking to a mortgage broker is the quickest and simplest way to get an exact lending figure. A mortgage adviser will assess and verify your circumstances, income, outgoings and credit history and run affordability checks from across the market to give you an accurate figure. Not only will you receive an accurate figure but they will be able to tell you which lenders would be suitable for you based on your circumstances and therefore advise on the right mortgage deal for you.
If you’d like to find out how much you can actually borrow for a mortgage, then get in touch. 0113 320 320 5