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The curiosity on how much mortgage can i borrow is the first and most common question to arise while in struggling to get the amount. Many factors decide the actual amount that you can borrow. Like the two sides of a coin, lender and the applicant work for the same reason and this calls for the attention on multiple aspects. Your finances come under detailed notice, but that is all done, as we want you to have only the best deals on mortgage.
From your salary, expenses to deposit amount, everything comes into consideration. Every nook and cranny is under the inspection. Why not understand all the aspects first and then get the answer?
How Lenders Analyse Your Affordability Against Mortgage
Approving a mortgage is a big decision for the lenders. The most important factor for them is the repayment capacity and for that, an affordability assessment takes place. In previous days, the practice was to base the mortgage amount on a multiple of your income. In short, the loan-to-income ratio.
An example can explain this - If your income was £60,000, then three to five times of this amount was the loan amount. In this case, £300,000 is the maximum amount. Now after some changes brought by the Financial Conduct Authority in 2014, things are different. Now the lender takes the four-and-a half times of your income. This is the limit on which the lender caps the loan-to-income ratio.
Several other things that come into consideration are-
- The effect of changes in the interest rates on your affordability
- Possible changes in your lifestyle like - having a baby, redundancy, taking a career break.
You qualify on these circumstances and the approval is there to come SMOOTHLY. The importance of mortgage calculator is also undeniable here. The varied versions of it like mortgage affordability calculator and mortgage repayment calculator are important tools to know the repayment capacity.
What Are the Factors that Lenders Generally Dwell On?
You need to go through several stages to reach to the final destination. But you know what, all this hard work aims to provide you the best possible deal. More cooperate comes from your side, more possible it becomes to get the due and desired results. Following are the factors that count while processing your mortgage application.
Salary/Income
Income comes in many ways. Every single pound you earn counts as income. This too has variants according to the employment status such as employed, self-employed, other income. However, the figures below are just the estimation and actual percentage depends upon the lender.
• FOR EMPLOYED
| INCOME TYPE | PERCENTAGE TAKEN INTO ACCOUNT |
|---|---|
| Basic income | 100% |
| Overtime | 50-80% |
| Bonus | 60-90% |
| Commission | 50-100% |
| Allowances (car, shift etc.) | 50-100% |
Note - The percentage for overtime and bonus can go up to 100% if you get them on regular basis.
• FOR SELF-EMPLOYED
| INCOME TYPE | PERCENTAGE TAKEN INTO ACCOUNT |
|---|---|
| Net profit | 100% |
| Salary + dividends | 100% |
• OTHER INCOME
| INCOME TYPE | PERCENTAGE TAKEN INTO ACCOUNT |
|---|---|
| Pension income | 100% |
| Stipend | 0-50-100% |
| Bursary / grant | 0-50-100% |
| State benefits (child benefit/tax credit etc.) | 50-100% |
| Overseas income (earned in Euros/dollars/yen etc.) | 100% |
Some other factors too work in this field.
- Your basic income
- Income for child maintenance or support from ex-spouses
- Income from pension or investments
- Other income like - commission or bonus payments, earnings from overtime, any second job or freelance work
To prove the existence of the income, you need to provide
- Bank statements
- Pay slips
- Business accounts
- Details of income tax that you have paid
Do not forget to show any single or even smallest income source. This may help to increase the affordability for a mortgage amount.
EXPENSES
Just like income, every individual no matter how big or small in expenses counts with equal importance. For sure, it is best to have fewer expenses as it helps to qualify for a big loan amount.
- Credit card payments
- Insurance - travel, pet, life, building
- Maintenance payments
- Other loan or credit agreements
- Bills like gas, water, electricity, broadband, phone
Tips to qualify for maximum amount in mortgage;
- Improve your score
- Increase deposit
- Finalise accounts (for self-employed)
- Pay off debts
- Cut down on spending
You may also need to answer some questions on the estimated living costs. For instance, basic recreation, clothes, and childcare. Recent bank statements may also come to the picture to verify the figures you provide.
How Much Can I Borrow Mortgage With Deposit Amount
This can be a very important decisive factor. Deposit becomes the backbone in mortgage. Normally, at least 10% of the property is the minimum requirement. Adding more to it is always advisable because more deposit means less loan amount, which means lighter burden of obligation.
Bigger deposit, bigger benefit
You can actually count the benefits of having a bigger deposit. Especially for first time borrowers, it brings a HUGE relief that carries on during the whole tenure.
- Lower repayments - More you give as deposit, lesser in the loan amount and smaller are the instalments. Simple rule!!
- Less interest - When you borrow less, obviously you pay less interest. The interest rate on £250, 000 is always less than the interest rate on the loan amount of £300, 000.
- Better deals on mortgage - Lenders find people more promising who give more in deposit. To such applicants, they give better deals with more relaxation in rates and flexible repayment plans.
How Much You Can Borrow?
After the above information, it is now easier for you to calculate your expected loan amount. More precise answer to this question can be achieved with our advanced mortgage calculator. With the help of your income and outgoing ratio, almost an exact idea comes of the loan amount you qualify for. Your financial efficiency to pay the monthly instalments is always important in our journey to help you give a SUITABLE deal.
Just visit us and fill your detail in our mortgage calculator and then we can work on your expectations and the ways we can fulfil them.