What Is a Mortgage?
A mortgage is a type of long term secured loan used to fund the purchase of a property. There are several types of mortgages - including first-time buyer mortgages, home mover mortgages, remortgages, buy-to-let mortgages, commercial mortgages and more.
When you buy a home, you'll put down a lump sum towards the property purchase price; this is your deposit. The outstanding cost of the property is paid for with a mortgage. The mortgage will either be an interest-only mortgage or more commonly, a repayment mortgage. With an interest-only mortgage, you only make monthly interest payments and pay off the outstanding loan amount at the end of the mortgage term. With a repayment mortgage, you make monthly interest payments and mortgage repayments. While you'll own the home, if you don’t keep up with your payments, the lender can take possession of the property.
Mortgages typically have terms ranging from 10 - 30 years. The amount you can borrow is based on several factors - including your income, property value, deposit and credit score. Meanwhile, the interest you pay will depend on the mortgage interest rate, which is a percentage of the total amount you owe.
Let's Get Started
Here are a few steps to help you get started on finding out how much you can borrow for a mortgage and what deals might be available to you.
- Use a mortgage borrowing calculator - our calculator below will estimate your maximum borrowing amount
- Check your credit score - checking your credit score with at least one of the free credit reference agencies will show you where you stand and how lenders may view your application. If you have adverse credit events on your credit file this could limit the deals available to you
- Calculate your deposit - the size of your deposit will affect how much you can borrow. With a larger deposit, you’ll reduce your LTV which may mean the lender can offer you a lower interest rate
- Get advice from an independent mortgage broker - a mortgage broker like John Charcol can provide you with a more accurate idea of how much you can borrow and the different mortgage options available. We’ll be able to direct you towards the lender with the best deal for your circumstances
Our residential mortgage borrowing calculator will give you an estimate of how much mortgage you can get, although this will vary from lender to lender. Enter your income details below and hit the Calculate button.
This is not a quotation under the Consumer Credit Act. Figures are subject to validation of income, credit checks and a property valuation.
The How Much Can I Borrow? mortgage calculator is a great way to start – but it’s certainly not a definitive answer – and if it’s not the answer you’re looking for, our experts can review your full situation and advise on the most appropriate course of action, including products you might not previously have considered.
How Much Can You Afford to Borrow for a Mortgage?
How much you can afford to borrow for a mortgage typically depends on your income, expenses, LTV (loan-to-value), credit score and more. The maximum LTV offered by most lenders is 95% which means you’ll be required to provide at least 5% of the property’s purchase price in deposit. There are a few 100% mortgage products on the market, but you’ll have to meet the specific criteria for that product - e.g. family springboard, track record mortgage, etc. When you apply for a mortgage, your affordability is worked out in 2 steps.
Firstly, the lender will typically have a maximum income multiple which will determine the amount you may be able to borrow up to, for example 4.5x your income. You can use our calculator below to work out your potential maximum borrowing.
Secondly, the lender will conduct an affordability check to determine how much they can actually lend to you and what repayments you can afford. This can impact things like your deposit requirements and mortgage term.
The lender will assess your income and outgoings as well as other factors, including your:
- Employment status, whether employed or self-employed
- Total gross income
- Regular expenses such as household bills
- Childcare costs
- Student loan repayments
- Credit history
- Future circumstances
It's worth remembering how much mortgage you can borrow and how much you can afford may differ. Therefore, it's a good idea to consider whether you can comfortably afford the repayments on a large mortgage. A good rule of thumb is to avoid spending more than 30% of your income on mortgage repayments. Any more than this could leave you without money to do other things, such as home improvements, build up your savings or go on holiday.
Our mortgage borrowing calculator will give you an idea of how much you can borrow on a mortgage based on your income. While our repayment calculator can show you what your monthly payments will be once you have a mortgage deal in mind.
Mortgage Eligibility: How Much Can I Borrow?
If we could all borrow as much as we liked, we’d all live in mansions and penthouses. Sadly that’s not the case, so in order to establish how much you can borrow, your mortgage lender will take the following into consideration.
Your deposit is the amount you have to put down to secure your property. Normally a deposit of at least 5% - 10% is required to secure a mortgage. However, there are a few first-time buyer mortgage providers who offer products at 100% LTV.
The older you are, the less time you have to pay off your mortgage and this means your monthly repayments will be higher on a repayment mortgage.
Your ability to borrow money is subject to a good credit rating. Lots of factors can affect your credit rating, such as credit card repayments and timely bill payments so it's a good idea to keep on top of everything well in advance of applying for a mortgage. If you're not sure what your credit rating is, you can check using websites such as Experian and Equifax.
How Much You Earn
It stands to reason that lenders will be more willing to let you borrow a greater amount of money if you have more disposable income. If you're buying with a partner or even a friend, your joint income and expenditure will be taken into consideration.
Being on the Electoral Roll
Your mortgage lender can ascertain some information about you if you are, or have been, registered to vote. Being on the electoral roll is regarded favourably by lenders.
If you regularly go on shopping sprees, you'll want to curb that habit before applying for a mortgage. If a mortgage lender sees that you have high expenditure and high debt they'll be less willing to let you borrow as much money as you may want.
How Much Can I Borrow? FAQs
What Percentage of Salary Can You Borrow for a Mortgage?
While the amount you can borrow for a mortgage will vary depending on your circumstances and the lender, you can typically expect to borrow up to 4.5x your annual salary/income.
For example, if you earn £30,000, you may be eligible for a mortgage of £135,000. Some lenders may use a higher or lower income multiple. It's important to remember that lenders will consider several other factors besides salary when assessing how much you can afford, such as your age, monthly expenses, employment status and deposit size.
How Much Deposit Do You Need for a Mortgage?
When getting a mortgage, you'll typically need a minimum deposit of 5% to get a mortgage with an LTV of 95%. If you’re able to provide a deposit of around 10%, 15%, or 20%, you'll have access to better rates and deals which could make your mortgage cheaper in the long term. The cheapest mortgage deals available usually apply to those with a deposit of at least 40%.
There are some 100% mortgage products available from a few lenders but you’ll have to meet their specific criteria to be eligible.
What Are Mortgage Interest Rates?
Mortgage interest rates are what lenders charge people for borrowing money. They’re generally expressed as an annual percentage rate or APR. The lender adds the interest rate to the principal amount borrowed, which you generally then pay back over the life of a repayment mortgage with monthly sums.
Interest rates typically vary depending on your credit score, deposit size, mortgage term and market conditions. Fixed rate mortgages have a fixed interest rate for a specific period, usually 2 - 5 years before you go onto your lender’s SVR (standard variable rate) which is often much more expensive. Variable interest rates can fluctuate, and the amount of interest you pay on your mortgage can go up and down. You would typically remortgage or take out a product transfer when your fixed rate comes to an end to avoid paying more interest than you have to. Our mortgage advisers can help you arrange a remortgage or product transfer up to 6 months before the end of your deal.
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