How much can I borrow for a mortgage in the UK?

Getting onto the property ladder is one of life’s rite of passages. Having a home to call your own brings security, builds assets and gives you freedom to make a place your own that you just can’t do with renting.

Whether you’re buying for the first time or selling up and buying somewhere new, the big question you need to ask before you start looking for a property is this: how much can I borrow?

In this short article, we’ll look at the ins and outs of mortgages, giving you a rundown of how your mortgage amount is calculated whilst also linking you to some important tools, like mortgage calculators, that can support your home buying journey.

What does a mortgage calculation take into account?

When lenders decide how much you can borrow, they don’t just pluck a number out of thin air. They examine a structured set of criteria that provides insight as to what level of loan you can afford now and in the future. Those ‘criteria’ can vary wildly from lender to lender depending upon what client types they predominantly would like to attract.

At a high level, most will look at:

Your income

This includes your basic salary, allowances, bonuses, commission, overtime and sometimes your allowances. If you’re self-employed, they’ll typically look at an average of your last two or three years’ earnings.

Your outgoings

Regular commitments like loans, credit cards, childcare, car finance and even subscriptions can all factor in. The more you have going out, the less you’ll be able to borrow. You’ll find that these factors are all weighted differently from lender to lender.

Your credit history

Lenders want to see how you’ve managed debt in the past. A strong credit profile can improve your borrowing potential, while missed payments or defaults can reduce it. Having said that, one of the successes of the UK mortgage industry is its willingness to find solutions for those borrowers who have had challenges in the past but are able to show that their current/ future position has a strong foundation.

Your deposit

In general terms, the bigger your deposit, the lower the risk for the lender. That often translates into being able to borrow more, or potentially access better rates. Naturally, we must stress that these factors are wholly dependent on each individual's current circumstances.

Your circumstances

Things like the number of dependants and/ or children you have, your employment type, and even your age can all influence the final figure.

Find out what you could borrow with our mortgage calculator

Most mortgage calculations start with an income multiple. It’s difficult to put a hard number on this as there’s a lot of fluidity when it comes to how much you can borrow. It depends on everything from market conditions to lender appetite.

The easiest way to get an estimate of how much you could potentially borrow is to use a mortgage calculator. You can access our mortgage calculator here.

You should take the result as an illustrative example rather than a predictive one. Always speak to a certified mortgage advisor for advice when seeking a mortgage.

Bear in mind that when lenders apply affordability stress testing, they’ll consider all your lifestyle and financial details.

They’ll assess:

• Whether you could still afford repayments if interest rates rise
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• How your monthly budget holds up after all your expenses
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• Whether your financial situation is stable enough over the long term.

This is why two people on the same salary can end up with very different borrowing limits. Mortgage lenders, aren’t satisfied with your income alone, they also want to know about how much of a risk loaning you the money is.

Why do different lenders offer different amounts?

So why do certain lenders offer more than others? This is where things start to vary quite a bit.

Each lender has its own appetite for risk, and that feeds directly into how much they’re willing to lend. Some will be more conservative, others more flexible.

Key differences include:

Income multiples

Some lenders will offer greater or smaller income multiples from the norm.[GU1.1]

How income is assessed

Lenders will differ on how much of your income (like bonuses) is accepted from your application. [GU2.1]

Affordability models

It’s important to bear in mind that different lenders use different assumptions when stress testing your finances, particularly around future interest rates and living costs.

Credit scoring criteria

What one lender considers acceptable, another lender may not.

Where mortgage brokers come in

This is where a mortgage broker can make a real difference.

Rather than approaching a single lender, a broker has access to a wide panel of lenders and understands how each one assesses applications. That means they can:

• Match you with lenders more likely to approve your application
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• Help identify lenders whose criteria may better suit your circumstances
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• Help you avoid wasted applications that could impact your credit score
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• Guide you through the process from start to finish.

In terms of cost, it varies.

Some brokers are fee-free, earning commission from the lender. Others charge a fee, which could be a flat amount or a percentage of the loan. In many cases, you’ll see a combination of both.

What matters is transparency. You should always know what you’re paying, when, and what you’re getting in return.

Speak to an advisor today

Looking for help finding a mortgage lender suitable for you? Our mortgage service can help. Contact Emmanuel, our accredited mortgage advisors today. Email him a emmanuel.asafo-agyei@myvmgroup.com or call him on 07780 266629.