Before you start the process of getting a mortgage, you will want to know how much mortgage you can get and therefore what property value you can start house hunting for.
As a rule of thumb, you can get 4.5 times your income for your mortgage. This would be based on fitting the mortgage lender’s criteria and having little to no debt and an average UK income of around £28,000.
Why it is important to know how much mortgage you can afford
One of the first questions you will ask yourself when wanting to move home or buy a house is what size mortgage you can get. Without knowing this amount, it is impossible to start or plan to look for a new home purchase.
It is important to know how much you can borrow before you start searching for a property. Once you know how much lenders are willing to lend, you can add this to the deposit you have saved and then will know the property value afford.
Lenders decide whether they will lend or not by using affordability calculators to work out how much of a mortgage you can get. The amount will be based on your income and outgoings and the mortgage payments.
With there being over 14,000 mortgage deals being offered by over 90 different banks and building societies, getting a mortgage can feel a little confusing! In this guide, we will take you through a couple of logical steps to find out your maximum mortgage as well as how you can get the lowest interest rates and monthly repayments.
Working out your mortgage affordability
How much you can borrow on a mortgage is based on your income, outgoings, and overall affordability. Below we delve into the details of how much income is needed and mortgage lenders’ affordability criteria.
How much of a mortgage can I get based on salary?
Wondering How many times my salary for a mortgage? Technically speaking, calculating how much you could borrow with the “times salary method” stopped in 2014. Since then banks and building societies now use mortgage calculators to stress test your affordability. This is because it is essential that the monthly mortgage payments are very affordable to you and your income, even if your rate was to go up slightly. Lenders will now look at the overall cost to you and if your finances fit the mortgage shape and size you are looking to achieve.
Mortgage affordability calculator
All Banks and building societies these days use mortgage affordability calculators to calculate how much you can borrow. They can be called affordability calculators, mortgage calculators as well as remortgage calculators.
Using a mortgage affordability calculator to work out how much you could borrow
Mortgage calculators are great but our advisors always recommended using them with a pinch of salt. This is because each mortgage lender has its own unique mortgage calculator alongside its lending and affordability criteria which greatly differ from lender to lender and will give you very different and sometimes incorrect amounts.
Each lender has its very own way of looking at your financial commitments when these are entered into the affordability calculator. The fields you need to be very accurate with are annual income, outstanding loans, child maintenance, and utility bills to name a few!
Using a mortgage calculator to work out your monthly payments
Below we have what we call a simple mortgage repayment calculator. This will help you to work out what mortgage you could afford based on what your mortgage repayments could be. If you are asking yourself “is there a joint mortgage calculator”, the answer is technically no. The mortgage calculators tend to be based on income and mortgage amounts, therefore are not biased towards sole applicants and cover both sole and joint applicants.
Work out how much your monthly mortgage payments will be
Using a remortgage calculator
A remortgage calculator is designed to identify how much you could save on monthly payments by transferring your mortgage to a new lender or product. Unlike a typical mortgage calculator, it takes into account the amount of money owed on your existing loan, the worth of your home, and any other debts secured against it. A mortgage calculator is designed more specifically to fit first-time buyers and individuals looking to purchase a property. However, a remortgage calculator is a perfect tool for those switching lenders or products, providing an estimate of how much you can borrow as well as what your monthly payments will be with the new lender.
How do mortgage lenders work out how much mortgage I can get?
Each lender uses their own mortgage affordability calculator to prove that you can afford your mortgage repayments very easily and without any financial strain, and be able to afford the monthly payments on your mortgage. Because each lender has its own mortgage calculator, it’s important to use quite a few of them. The reason is that each bank and building society has its own mortgage calculator for working out the amount of mortgage you can have. A mortgage broker has access to all these mortgage lenders’ calculators and is able to find you the lowest interest rate and monthly payment.
Lenders Affordability Assessments
Lenders will base the maximum borrowing amount on income and an overall mortgage affordability test. Lenders look at your affordability on a case-by-case basis, however below is an overview of 4 of the most common assessments lenders complete to calculate affordability.
1) Debt-to-income ratio
Lenders will measure your debt-to-income ratio (DTI) to determine how much of your income is going towards repaying debts. Usually, people assume affordability is just calculated on the income required for mortgage approval. However, the DTI factor plays a crucial role in deciding whether you can afford a mortgage or not. Generally, lenders prefer for the DTI to be 36% and under; however, this could vary depending on who you are working with as well as what type of loan it is that you are applying for. The lower your DTI ratio, the better because then there’s more disposable income that can go into paying off some of the mortgage balance each month.
2) Affordability stress tests
When choosing a mortgage deal, it is crucial to take into account the lenders’ affordability stress tests. This process determines whether you can maintain your mortgage payments if interest rates were to rise by calculating your financial capacity based on an assumed enhanced rate. Performing this test will ensure that you are able to comfortably manage any changes in your monthly repayments.
3) Maximum loan-to-value (LTV) ratio
When selecting a mortgage that is suitable for your monthly payment budget, it’s prudent to consider the maximum loan-to-value (LTV) ratio. This figure displays what percentage of the property value a lender will agree to lend you after an affordability assessment and varies between lenders depending on which type of mortgage deal you are applying for. As the LTV ratio increases, so does your ability to pay less money upfront in terms of deposit amount; however, there may be a consequence as higher interest rates and monthly payments could become applicable.
4) Credit Score
A bad credit score can affect how much you can borrow. As all lenders will check your credit history it is highly advised that you check your credit score and get it into shape at least six months before you start looking for your new home. To check your credit history and credit rating go to a company website that offers a credit score review such as Experian and ClearScore.
Getting a Mortgage in principle (MIP) for proof of funds
Showing potential estate agents and sellers that you are a serious buyer is made easier with a Mortgage in Principle (MIP), also known as a Decision in Principle. This document provides an indication of how much the lender may be inclined to offer based on your income, credit score, and other conditions. You can get this from a mortgage broker – it’s usually valid for 90 days giving you plenty of time to find your perfect home!
The average value of a mortgage borrowed in the UK
Below is a graph that shows the average mortgage amount borrowed in the UK from 2016 to 2022.
Which services shall I use to calculate how much mortgage I can get?
Most things in life work out far better if a little time is spent planning before you start! The same goes for anyone planning a move or if you’re needing a remortgage. Each of the 90-plus different Banks and Building Societies in the UK has its own underwriting and lending criteria. Therefore although you may be asking “how do I get the maximum mortgage possible?”; getting your maximum mortgage will very much depend on your own financial situation.
Achieving the average UK mortgage is very possible however it will depend on which mortgage lender you choose for your financial situation. Some lenders have a preference for lending more to the employed and some lenders will lend more to you if you have no loans or credit cards. The size of your deposit will also come into play giving you better mortgage rates and lower mortgage payments.
Shop around for the best mortgage deals
There are over 90 different providers with over 14,000 mortgage products and interest rates including ‘specialist lenders’. It would be advisable to get the help of a fee free mortgage broker who will have access to the ‘whole market lender’s calculators as well as other mortgage tools. These mortgage calculators will be able to work out your affordability for the monthly payments. A fee-free broker will be able to do all the research on your behalf whilst supporting you throughout the process.
Using a Mortgage comparison website
This is not a bad place to start however you need to be aware that most of the comparative websites are not whole of market and in fact, most will only compare mortgages from a handful of lenders so tread carefully.
Using the professional services of a fee-free mortgage broker
You can get fee-free mortgage advice from a broker like YesCanDo who will help you find and choose the right mortgage for you. They will provide you with a personalised borrowing amount at your best available interest rate and therefore lowest monthly repayments. Brokers compare mortgages in a more efficient way than most comparison websites. They also compare mortgage deals and mortgage rates from every lender to make sure you have the very best new mortgage deal with a trusted lender. YesCanDo is also known for having an extremely high level of customer service. Take a look at our reviews!
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Mortgage Affordability – FAQs
When looking at your annual income, mortgage lenders will want to know if the applicant’s income comes from being employed or self-employed. Self-employed earnings are often taken as an average of the last 3 years. If you’re employed then most lenders will want to know if all your income is basic or is any overtime, bonus, or commission. They will also want to know if you have any debt and the monthly payments which will reduce the amount you will be able to borrow.
If you are wondering “how much can I borrow?” here is a rough idea of someone on £30k a year getting a mortgage: An employed person age 26 on £30,000 basic salary with no debts and no dependents would be able to borrow approximately £140,000. This will vary once put through a mortgage calculator to work out how much you could actually borrow, however, this is a good example.
When considering a mortgage with a 40k salary in the UK, lenders will take into account your income, expenses, debts and creditworthiness. Here is an approximate estimate of how much you may be able to borrow:
If you have a steady job and no outstanding debts, you could be eligible to borrow up to 4.5 times your yearly salary – in this situation that would amount to an incredible £180,000!
When applying for a mortgage, it is critical to remember that different lenders may have varying requirements and standards when assessing affordability. They will likely look at your credit score, monthly costs and the size of your down payment. To get an exact idea regarding how much you could be eligible to borrow, consulting with a mortgage adviser or utilizing an online calculator are ideal ways of obtaining this information.
To give you a very rough idea of someone looking for a £150,000 mortgage. Let’s paint the picture: A young couple looking to buy their first home together in the UK (first-time buyers). They would need an annual income of at least £35,000 a year between them to suit affordability. They would need to have no loans or debts otherwise this would reduce the amount they can borrow. Every lender uses a different mortgage calculator to work out how much you can borrow. This will vary so it is best to speak to a mortgage adviser who will be able to advise you and answer the question “how much can I borrow on a mortgage?”.
As mentioned before, every case is looked at on an individual basis. A mortgage lender will look at your income and whether you are employed or self-employed. The lender will want to know such things as if you have any dependents. They will also review your debt such as credit card or loans and credit score.
To give you a very rough idea of someone looking for a £300,000 mortgage with a 25-year mortgage term: A couple looking to buy a home with a £300,000 mortgage would need to earn at least £70,000 a year between both of them. They would need to have no loans or debts otherwise this would reduce the amount they can borrow. Every lender uses a different mortgage calculator to work out how much you can borrow. This will vary so make sure you speak to a mortgage adviser who will be able to advise you and answer the question ” how much can I borrow on a mortgage for my new home?”.