If you are reading this guide there is a very good chance that you want to know how much you can borrow for a mortgage. What size mortgage will the mortgage lenders let you have based on your income?
It is possible that you will be able to borrow 4.5 times your salary and possibly even 5 times your salary. This would be based on you having no debt and an average UK salary or higher.
In this guide, we will let you know how the different banks and building societies calculate how much they can lend you. We will also focus on how you can turn this to your advantage to maximise your borrowing potential.
Working out how much you can borrow on your mortgage
How do mortgage lenders work out how much you can borrow?
Up to a few years ago working out the amount that you could borrow for a mortgage was quite straight forward. Each Bank and Building Society would have its own calculation which was based on a multiplication of your income. One mortgage provider would lend four times (4x) your salary another would lend five times (5x) your annual income and it was even possible to borrow six times (6x) your income. But this was about to change…
Along came the recession of 2008 and everything changed! All of a sudden people were struggling financially and finding it hard to pay their monthly mortgage payments. Things needed to change and the government stepped in with a new way of working out how much you could borrow.
Mortgage affordability calculators
So in April 2014, the government instructed that all Banks and Building societies should make sure everyone could afford to pay their mortgage both in good times and also bad financial times. This was when all mortgage lenders introduced mortgage affordability calculators. Although it made total sense, it did make it more difficult to find out how much you could borrow.
Mortgage calculators do still use income multiples to calculate how much you can borrow but this is where it gets a little confusing. This is because it varies as there is no rule of thumb. If you are on a very good income with no loans or credit cards and no large monthly outgoings you could possibly get 5 times your income. When we say possibly, we know the government instructed mortgage lenders to only lend 5 times income to 15% of their borrowers! So how do you know if you are one of this 15 %? Basically there is no straightforward way of knowing.
How about if you earn an average annual income and have a few monthly commitments and a couple of debts thrown in. Is there an easy way of knowing how much you can lend? Unfortunately, the only way of finding out the amount you can borrow is through each mortgage providers individual affordability mortgage calculator.
With over a hundred different Banks and Building Societies, it could be very time consuming to visit each one to find out how much you can lend.
Don’t panic! There is a solution!
Paying too much for your mortgage?
Chances are you could save money with a better rate
Within half an hour you can find how much you can borrow from every mortgage lender in the UK
There is a very speedy and easy way to find our the lender that will give you the largest mortgage. You could get the results within 30 minutes if you use a mortgage broker!
Mortgage brokers have access to every mortgage affordability calculator in the UK.
First, find yourself a mortgage broker. They will first take a few minutes asking a few questions and getting some basic details from you. They will ask to see your last 3 months payslips together with a list of any debts you may have for example credit cards, hire purchase and loans. This will allow them to find out exactly what every single mortgage provider in the country will be willing to lend you. Find out how to keep your credit rating clean here.
Brokers have access to systems that allow them to use every bank and building society in the UK . These banks and building societies will do there own affordability assessment and then report back to your mortgage broker about the maximum they are willing to lend you. You will now know how much you will be able to borrow from every lender in the UK.
The amount will vary considerably, far more than you would think!
What else can a mortgage broker do?
A mortgage broker has access to the whole mortgage market and can compare interest rates and deals for you. There are over 14,000 deals to choose from! Obviously you will want the lowest interest rate as possible to help make your monthly payments as low as possible.
Tell your advisor what you are wanting to achieve as this way they will be able to give you expert advice. A lot of mortgage products have fees and costs however you broker will be able to search using a mortgage calculator to find the mortgages available with no fees!
Mortgage lenders are often keen to attract new customers and therefore will offer incentives for example.
- Free valuation surveys
- Free legal fees
- No arrangement fees
Your brokers will search the whole market to get you not only the best interest rates but also aim to get a mortgage at no cost to you.
Once you are happy with the advice that has been recommended, the next step is applying for a mortgage. The mortgage consultant will be able to apply for a mortgage by submitting a mortgage application on your behalf. The lender will want to see the latest 3 months payslips and more than likely at least your latest months bank statements. The lender will check your credit rating and then the lender will arrange for a valuation survey to be carried out on the property to make sure they are happy with the property value and the build of the property.
If everything if good with the survey your application should then go to the underwriters. The underwriters will check that everything received fits the lending criteria and then proceed to the mortgage offer.
How much will a mortgage broker charge me?
Although many brokers do charge for their services there are a lot that do not. These are called fee-free / no-fee mortgage broker.
The easiest way to find a fee free mortgage broker is by searching on Google. Search independent fee free mortgage broker. and this will give a list of brokers that do not charge for there services.
Spend a few minutes comparing the mortgage brokers. You need a company that is going to look after you and is great with communication. Have a look at their Google reviews and Facebook reviews, there should be lots of them and they should be 5 stars.
Alternately just get YesCanDo Money to help you! How can we help you?
YesCanDo Money was established over 30 years ago and are a family run independent whole of market brokers. Even better they are fee-free which means they will not charge you a penny to find or process your application. They have a team of mortgage advisors on hand to help you each step of the way. YesCanDo Money believes in great customer service and as well as using email and phone to communicate. They also use Whatapp which has proved very popular with clients, especially during the lockdown. (2020 pandemic)
Do lenders take student loans into consideration when applying for a mortgage?
Most lenders do take student loans into consideration if they appear on your payslip. They will see this as a monthly financial commitment and it can mean you will be able to borrow slightly less.
What if the interest rates rise
So what happens if the interest rate rises? At the time mortgage lenders are calculating how much it is possible to borrow there are quite a few factors taken into account. They use something called a stress test which basically means as well as multiple of income, they have allowed for the bank of England interest rates to increase and you will still be able to afford the monthly repayments.
How much income do I need for a 200k mortgage?
How much can I borrow is a difficult question to answer with any accuracy unless we set a scenario.
If a single applicant employed with no commission or bonus and a pension that the employer pays into but not the applicant. Said person has a good credit score and a credit card which has its finance cleared each month.
Over a hundred different providers were researched and the income needed for this would be ranging between £43,000 – £56,000.
How much mortgage can I get with 60000 salary?
How much can I borrow is difficult to give with accuracy unless we have a scenario. The amount you can borrow will vary from one lender to another and will depend on:
- Your employment status.
- If you are an employee or have self-employed earnings
- It will be different for company directors with a net profit or dividends
- Whether you have a joint income and children
- If you have pensions and investments
- If you have properties that you get an income from
In this example, we will look at an employed single applicant with no dependents and no loan or credit agreements. The applicant is age 30 and wants a 25-year term. The income is £60,000 basic. They have been with the employer for more than 6 months and the income has not changed.
With over 100 different lenders researched the loan size for the said person ranged from £230,000 – £300,000
How much deposit do I need?
The interest rates available to you will vary depending on your deposit size. The more deposit you have the better interest rates you will have access to.
You may have heard the term Loan to Value/LTV before. This might sound confusing, but it’s simply the amount of your home that you own outright vs the amount that is secured against a mortgage.
For example, with a £25,000 deposit on a £250,000 property, the deposit is 10% of the price of the property, and the loan to value or LTV is the other 90%.
Your interest rate is likely to be lower if your LTV is lower. This is because smaller loans are much less of a risk for lenders. The average deposit for first-time buyers in 2018 was 16%.
Who are the Financial Conduct Authority (FCA)?
All brokers are authorised and regulated by the Financial Conduct Authority FCA.
This is for your protection and to make sure that the service and advice level is sound.