Before you start the process of getting a mortgage, you will want know your mortgage affordability, in other words how much mortgage you can get. This is a vital first step in your mortgage journey so you can know what property value you can start house hunting for.
How To Calculate Mortgage Affordability
As a rule of thumb, mortgage affordability is calculated based on 4.5 times your income. 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.
Mortgage Affordability Calculation Examples:
Single Income Mortgage Affordability: For an individual looking to get a mortgage on their own and with the applicants income being an average income of £28,000, the estimated mortgage affordability would be £126,000 (4.5 times £28,000).
Joint Income Mortgage Affordability: If considering a getting a mortgage using joint income lets assume you are both on the same income. The joint income would equate to (£56,000), the estimated mortgage affordability for your joint mortgage would be £252,000 (4.5 times £56,000).
Determining how much mortgage you can secure is a critical step when planning to buy a home. To get a clearer picture of your potential borrowing capacity, here’s a more focused guide:
Understanding Mortgage Affordability: How Much Mortgage Can I Get?
“Gaining clarity on how much mortgage you can afford is a vital step in your journey towards home ownership.” This understanding shapes your search and sets realistic expectations for the properties you can consider. Here’s what to focus on:
1) Understanding Your Borrowing Capacity: Before embarking on house hunting, it’s crucial to ascertain your mortgage affordability. This aids in establishing a realistic property value bracket you can target.
2) Lender’s Mortgage Affordability Calculators: Lenders utilise specialised calculators to gauge how much they can lend to you. These tools evaluate your financial scenario, focusing on income, outgoings, and potential mortgage repayments.
3) Factors Influencing Mortgage Amount: Your earnings significantly influence your borrowing power. Lenders typically base their calculations on your income. Existing debts and regular outgoings are scrutinised to ensure you can comfortably manage mortgage payments. Additionally, the magnitude of your deposit can affect the mortgage amount, with a larger deposit potentially enhancing borrowing capacity.
4) Navigating the Mortgage Market: The market is offers around 14,000 mortgage deals from 90+ mortgages lenders, each presenting unique terms and conditions.
5) Steps to Determine Your Maximum Mortgage: This involves collating details of your income, outgoings, and savings, employing multiple affordability calculators for a more comprehensive perspective, and considering the counsel of a mortgage broker for deeper insights and access to a broader range of products, which might offer more favourable rates and terms.
6) Additional Considerations: The impact of interest rates and monthly repayments on your overall mortgage cost is critical. It’s also important to ensure that the mortgage remains manageable over the long term, even if interest rates rise.
By adhering to these guidelines, you will be better positioned to estimate the amount of mortgage you can secure, an integral part of your journey towards buying a home. Keep in mind, each lender’s criteria can differ, so exploring a variety of options is
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 a mortgage affordability calculator 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!
For a more detailed and personalised mortgage affordability, use our Mortgage Affordability Calculator here >
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.
Mortgage Repayment Calculator: Working out what monthly repayments you can afford
To assist you in planning your finances and mortgage affordability, our Mortgage Repayment Calculator is designed to help you determine the monthly repayments you can comfortably afford.
Mortgage Lenders Affordability Assessments
Lenders will base the maximum borrowing amount on income and an overall mortgage affordability test. 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 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, ClearScore, and Checkmyfile UK.
Proof of Mortgage Affordability: Getting a Mortgage in principle (MIP)
Once you know how much mortgage you can afford the next step is proving your affordability. 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!
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.
1) 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.
2) 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.
3) 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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YesCanDo Money is one of the UK’s leading FREE mortgage brokerages, covering the whole of the UK. They offer free online mortgage advice, as well as telephone, video calls, and face-to-face appointments. Whether you want to renew your current mortgage and the end of its mortgage term or get a new mortgage for a brand-new property, we can help.
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Mortgage Affordability – FAQs
What is the Affordability Criteria for a Mortgage?
Mortgage affordability criteria vary by lender but generally include your income, debts, credit score, and outgoings. Lenders assess your ability to sustain mortgage payments, considering factors like your debt-to-income ratio and potential future interest rate increases.
How Much Mortgage Can I Get Based on Salary?
Can I Get a Mortgage 5 Times My Salary?
Getting a mortgage 5 times your salary is less common and typically requires a strong financial profile, including a high credit score, a stable and higher than average income, and low debt-to-income ratio. Each lender's criteria will ultimately determine this possibility.
How Much Mortgage Can I Borrow on 30k Salary?
On a £30,000 salary, using the general rule of 4.5 times your income, you might borrow up to £135,000. However, this depends on the lender's criteria and your financial circumstances, including debts and credit score.
