Want to borrow a £500,000 mortgage? Then keep reading to find out what criteria you need to meet to be eligible and what the mortgage means for you in the long term.

In this guide we talk about the overall cost of a £500,000 mortgage, including deposit and interest, as well as what income you need to access a mortgage of this size, the different types of mortgage options that might be open to you and more.

Requirements for a £500,000 Mortgage

Every lender has their own criteria which means that you won’t necessarily get the same deal everywhere. Nonetheless, there are some general requirements for a £500,000 mortgage that, if you meet these requirements, will give you a good indication of your eligibility and the likelihood you’ll qualify for a mortgage of this size.

Affordability and Income

Maximum Borrowing

Your income is one of the major factors that lenders will look at when deciding whether or not you're eligible for a mortgage. Most lenders will calculate the maximum you can afford to borrow by multiplying your income by a certain figure, such as the commonly used 4.5.

This means that to be eligible to borrow up to £500,000, you – together with any other applicants on the mortgage – would need an income of at least around £112,000 (as £112,000 x 4.5 = £504,000).

Bear in mind that your maximum borrowing isn’t the amount the lender will lend to you – it’s just the maximum amount they could consider lending to you based on your income. How closely they will let you borrow near to your maximum borrowing will depend on your situation and their criteria.

Some lenders may also work out your maximum borrowing using higher or lower income multiples; it’s down to the lender and their criteria which income multiple they want to use for your application. If one of the applicants has an income of more than £75,000 then the lender may be able to offer you a higher income multiple which means your maximum borrowing will be higher.

To work out your potential maximum borrowing use our mortgage calculator.

If you’re employed you’ll need to provide the lender with contracts of employment and/or bank statements. If you're self-employed you’ll need to provide at least 1 years' worth of tax returns.

Monthly Payments

Once a lender has worked out your maximum borrowing, they will determine what you can actually afford to borrow and your potential mortgage term based on what you can afford to pay back on a monthly basis. To do this, the lender will look at your monthly income alongside your monthly outgoings. This will include recurring bills, loan repayments, credit card repayments, car financing payments, child maintenance costs and more. The more expenses you have, the higher your income will need to be to satisfy affordability requirements.

Some lenders are willing to consider assets and other income streams when calculating your mortgage affordability, such as property, pensions and stock returns, which can allow you to borrow more. To access these more specialist lenders, speak to a mortgage adviser at John Charcol on 0330 433 2927.

Deposit for a £500,000 Mortgage

The deposit requirement for a £500,000 mortgage will first depend on how much the property is and your intention with it – e.g. to live in it or rent it out. The minimum deposit for a residential mortgage in the UK is 5% of the property’s value, although you’ll have access to many more worthwhile deals if you can put forward 10% in deposit.

This means that if you wanted to borrow at least £500,000 to put towards a property on sale for £550,000, you’d need to provide £27,500 - £55,000 in deposit.

If you wanted to secure a mortgage on a £500,000 house, you’d need at least £25,000 - £50,000 in deposit. The mortgage would then make up the remaining £475,000 or £450,000.

If you have a more complicated situation or are after a non-standard property, the lender may require a larger deposit from you. For example, if you're in either of the following situations, you could be looking at a deposit of:

  • Poor credit history: 15% - 40%
  • Non-standard construction properties: 5% - 20%

As with most other mortgages, the higher the deposit you're willing to put forward, the better your deals typically will be. You will often get the best deals if you’re able to forward upwards of 20% - 40% deposit.

Credit History and Credit Score

Lenders will want to see your credit history to make sure that you’re a low risk lending prospect. If your credit history shows that you have had trouble repaying loans in the past or if it highlights other financial problems, you'll find it harder to get a competitive mortgage offer.

Credit problems that could make it harder for you to get a £500,000 mortgage include:

  • No credit history
  • Using a high percentage of your available credit
  • Too many recent hard credit checks
  • Late payments
  • Missed payments
  • Unauthorised overdrafts or credit card debt
  • County court judgments
  • Individual Voluntary Agreements
  • Debt management plans
  • Bankruptcy
  • Missed mortgage payments
  • House repossession

These are issues of varying severity. Mortgage lenders will be most concerned about issues such as bankruptcy, missed mortgage payments, and property repossession. They will also view recent bad credit events more severely than ones from more than a few years ago. Bad credit events stay on your credit file for 6 years.

If you have a history of bad credit and waiting for your credit profile to improve isn’t necessarily the best option for you, you could consider using an adverse credit lender. These lenders offer mortgage at higher rates and often have larger deposit requirements, but they’re available through intermediaries and are able to offer lending options to bad credit applicants.

Repayments on a £500,000 Mortgage

Your monthly payments on a £500,000 mortgage will depend on the interest rate and mortgage term.

For example, if you took out a £500,000 repayment mortgage with a 5% fixed interest rate, set over a 20 year term, the monthly payment (made up of a mortgage repayment and an interest payment) would be about £3,299.78. 

You can use our mortgage repayment calculator to help get an idea of how much you could be paying each month.

Generally, the longer the mortgage term on a repayment mortgage, the lower the monthly payments. This is because repaying the loan is spread out over a longer period of time. However, a longer mortgage term will likely result in mortgage interest paid overall.

Interest-Only Payments for a £500,000 Mortgage

Interest-only mortgages are common for buy-to-let properties but are sometimes used for home purchases. For this type of mortgage, you only pay the interest each month without making any mortgage repayments (payments towards the principal loan amount). This means that the monthly payments on an interest-only mortgage tend to be cheaper than a repayment mortgage for the same amount, although more interest is paid overall.

Using the same example as we did for a repayment mortgage highlights the potential difference in these monthly payments – e.g. if you took out a £500,000 interest-only mortgage with a 5% fixed interest rate and 20 year term, you would pay about £2,083.33 in monthly payments.

Note that with an interest-only mortgage, you must provide the lender with evidence of a suitable repayment vehicle for when you reach the end of the mortgage term.

How Can I Improve my Chances of Getting a £500,000 Mortgage?

If you want to improve your chances of getting approved for a £500,000 mortgage or increase the amount you can potentially borrow, there are several approaches to take.

Use a Mortgage Broker

A mortgage broker like John Charcol can help you find better deals, walk you through the process and ultimately take care of the whole process for you. We look at your situation and then use our knowledge to find the right lender with the best option for your circumstances. We also have access to many more lenders than you will likely find yourself. This is because some lenders only deal with intermediaries and don't deal with members of the public directly.

Improve Your Credit Score

Improving your credit score can be a way to access more lenders and better deals. To do this, you can look at paying off debts, making payments on time and more.

Increasing Affordability

If your income only just covers a £500,000 mortgage, you might find it difficult to get approved. You can increase your affordability by looking at boosting your income or lowering your expenses.

£500,000 Mortgages: Roundup

A £500,000 mortgage is becoming more common due to the rise in house prices. While it can be challenging to secure a loan offer for larger sums like this, it's still easy enough to do if you have a high enough deposit and income to meet the criteria that lenders set or use a skilled broker.

Here at John Charcol, we have brokers with experience in mortgages for all types of properties, up to and beyond £500,000 in value. We have helped many, many people move home and we also have access to a wide range of lenders that do not always work directly with borrowers. To find out how we can help and make the process easier, get in touch today.

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