How Much Can I Borrow For a Mortgage?

If you are hoping to take out a mortgage, this article will highlight how much a lender might offer you based on your circumstances and what factors could impact how much you can borrow.

How do mortgage lenders decide how much you can borrow?

Your salary will have a big impact on the amount you can borrow for a mortgage.

Typically, lenders will offer between three and four-and-a-half times the annual income of you and anyone you are buying with. This means that if you are buying alone and earn £30,000 a year, you could be offered anything between £90,000 and £135,000.

There are exceptions to this, especially if you work in a certain profession. Some mortgage providers will lend doctors, dentists, and other professionals up to six times their annual income!

What does ‘LTV’ mean?

The deals you are offered when applying for a mortgage will usually be affected by the loan-to-value ratio or ‘LTV’ – i.e. the percentage of the price that you are borrowing compared to how much you are putting in yourself.

What this means is that if you have a 10% deposit, your LTV will be 90% – as your mortgage will need to cover 90% of the property price. With a 15% deposit, your LTV will be 85%, and so on.

Lenders will set a maximum LTV for each deal they offer – for example, a particular interest rate may only be available to those with an LTV of 75% or below. 

In general, the lower your LTV (i.e. the more money you are putting in yourself), the lower the mortgage rate, and the cheaper the overall deal.

In the wake of COVID-19, it has become much harder to get a low-deposit mortgage. The majority of 90% and 95% mortgages have been withdrawn, and those that remain come with stipulations.

This means that if you have a deposit of less than 15% of the property’s purchase price, you might be better holding off until the mortgage market stabilises and more deals return.

What other factors will impact how much I can borrow?

Monthly outgoings

Lenders will want to know how you spend your money as part of an affordability assessment. You are likely to get questions regarding:

  • Debt repayments (e.g. student loans and credit card bills)
  • Regular bills (e.g. gas and electricity)
  • Transport costs
  • Grocery costs
  • Spending on leisure activities

Your lender will also want to see recent bank statements and payslips to support your application.

Read our guide to saving for a mortgage deposit to find out more about keeping outgoing costs down.

Interest rates

Although it is something you have no control over, interest rates have a huge part to play when mortgage providers decide how much they might lend you.

In most cases, lenders will ‘stress test’ any proposed mortgage repayment plan to make sure you could withstand a rise in interest rates of at least three percentage points. If you search online, you can find many mortgage interest rate rise calculators to see how your mortgage payments would be affected if your interest rate increased.

If you have a fixed-rate mortgage, interest rate rises will not affect you until the end of your fixed-rate period. But with a variable-rate mortgage, your interest rate could rise or fall at any point during your term.

We hope you found this information helpful. At Boxall Brown & Jones, we work closely with OVISO – if you need any mortgage advice, make sure you check them out!

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