Understanding how much you can borrow is the first step towards owning your own home. However, mortgage affordability is a comprehensive assessment of your financial lifestyle, debt-to-income ratio, and future proofing against interest rate changes, so not always easy to work out accurately.
However, with the right preparation and expert guidance, you can maximise your borrowing potential and feel confident when searching for your dream home. Check out our Mortgage Affordability Guide for an in-depth look at the process.
How do lenders calculate my maximum borrowing?
Most UK lenders use a multiple of your income, typically between 4 and 5 times your gross annual income. For high earners and certain professionals, like doctors, some lenders may stretch this to 5.5 times your annual income or beyond.
Lenders will also stress test your affordability by looking at:
-
Outgoings - Such as personal loans, car finance, and childcare costs, for example
-
Discretionary Spending - other lifestyle costs, often verified via the last three months of bank statements
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Future Interest Rates - To ensure you could still afford the monthly mortgage repayments in the event that interest rates rise significantly in the future
Does my deposit size affect how much I can borrow?
Yes it does. The more deposit you have, the lower you’re Loan-to-Value (LTV). Your LTV ratio can impact the number of products available to you, and the type of rates you qualify for.
This table shows how your LTV is likely to impact the deals available to you/
|
Deposit Amount |
Loan-to-Value (LTV) |
Rates |
Criteria |
|
5% |
95% LTV |
Typically high interest rates |
Usually lenders have stricter criteria |
|
10% |
90% LTV |
Competitive rates available |
Criteria is often more flexible |
|
15% - 20% |
80-85% LTV |
Higly competitive rates |
Lenders may allow some bad-credit borrowers and have more flexibility with property types in theis LTV bracket |
|
40%+ |
60% LTV |
Market-leading rates |
Lenders generally offer the greatest flexibility and often allow higher-risk borrowers with this level of deposit |
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FAQs
Most lenders are happy to include bonuses, overtime, or commission, but they rarely count 100% of it. Typically, a lender will take an average of your variable income over the last two years and factor in 50% to 80% of that figure into your affordability total. Some specialist lenders, however, may consider 100% if the income is proven to be regular and sustainable.
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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