How much can I borrow?
How lenders work out what you can borrow, what impacts their decision, and how OneDome can help you get a mortgage.
How do lenders calculate what I can afford?
When you apply for a mortgage, the lender you choose will cap the loan-to-income ratio at four and a half times your income. As a result, if your salary is £50,000 per year, you will be able to get access to a mortgage up to £225,000. This is different from the past, where some mortgages could go up to five times the value of your salary. Of course, four and a half times your salary is still a sizeable amount, but mortgage lenders have had to become a little more cautious.
Lenders will also have to work out what level of monthly payments you’ll be able to afford. They do this by taking your various personal and living expenses into account. This is known as an affordability assessment.
These recent changes to how lenders assess what people can afford came from the Financial Conduct Authority in 2014, when the mortgage market came under review.
Your lender will conduct what is called a mortgage ‘stress test’, which are tests that check your ability to complete your mortgage payments. Some of these include:
- Having a break from your career
- Having a baby
- Becoming self-employed
If you meet one or more of these criteria, your lender may decide you aren’t able to afford the specific mortgage you applied for and might deny your loan application. On the other hand, they may simply reduce the amount you can borrow. Additionally, stress tests factor in possible interest rate rises, something that is unfortunately out of your control.
Key things the lender considers
– your base income
– income from any pensions, investments, etc.
– child maintenance and financial support (from ex-spouses or relatives)
– any additional earnings; overtime, bonuses, freelance, second job, commission
To prove your income, you will need to show the lender pay slips and bank statements. Alternatively, if you’re self-employed you will have to provide bank statements, business accounts, and details of any income tax that you’ve paid.
– repayments on credit cards
– maintenance payments
– any insurance payments
– bills (broadband, gas, water, phone, electricity, etc.)
Be aware that your lender could ask you for your estimated living costs. Things like recreation, childcare, food, entertainment expenditure are all considered by the lender. As well as this, your lender may ask that you provide recent bank statements to help prove any figures.
Potential changes in the future
Lenders take into account the possibility for changes in the future, which may affect your ability to repay a loan. Some of these future changes are:
– increased interest rates
– you or your partner losing a job
– potential for illness disrupting work
– significant life change; career breaks, having a child, etc.
Planning ahead and thinking about how you will meet payments is very important. Otherwise, you could find yourself either unable to get the mortgage, or unable to make repayments.
We suggest building up savings whenever possible, as you can use them to demonstrate your ability to repay to lenders. For the most part, showing you have enough to cover three months’ outgoings (including mortgage payments) should be enough to convince most lenders.
How much can I borrow?
Trying to find out how much you can borrow can be daunting but our tool, Mortgage Passport, makes it simple. With it, you can find out how much you could borrow in five minutes, as well as pre-qualify for a Mortgage in Principle. As a result, you can immediately stand out from any other buyers also trying to buy your dream property.
I have a question…
We fully understand that mortgages can be a complicated thing to wrap your head around. For that reason we offer a personalised concierge service to all our customers. Any questions you may have about the mortgage process, please don’t hesitate to get in touch with them and they’ll help guide you through the process.
If you’d prefer to speak to a mortgage advisor directly, call us on 0203 8686 262 between 09:00 and 17:00.
Can OneDome help me get a mortgage?
If you’re looking to get a mortgage, then our tool, the Mortgage Passport, is an excellent way to get started. By simply filling in a few details you can get an accurate quote of what you can afford in minutes. As well as this, you can pre-qualify for a Mortgage in Principle and use the Mortgage Passport to show sellers that you’re in a genuine position to buy. Stand out from other buyers with OneDome’s Mortgage Passport.
Key benefits of Mortgage Passport:
- Compare 90+ mortgage lenders to make sure you get the rate that is right for you
- Expert mortgage support available whenever you need it
- Standing out from other buyers is easy with the Mortgage Passport
- Find out how much you can borrow five minutes
- Personalised offers designed to meet your unique requirements
The smart way to find a mortgage
If you’d prefer to talk to a mortgage advisor directly, you can call 0203 8686 262 between 09:00 and 17:00
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