How much can I borrow?

Posted on 23 January 2011 by Danny kilgannon

I live in a property which is worth £400.000.  We have £240,000 equity on it as we only borrowed £160,000 from the bank.  We want to buy another property.  I earn £37.000 a year. How much could I borrow?


You don't say what you want to do with the second property and the answer to your question will depend on whether you are going to live in it or let it out?

If you intend to live in the property, then Lenders will want you to be able to afford the mortgage repayments on both your existing mortgage and any new one. To do this they will either add the two mortgage debts together and apply a simple calculation or they will count your existing mortgage as an annual credit commitment and deduct this from your income before making the calculation. Either way it is unlikely that you will be able to borrow sufficient funds to purchase a second property, although it may be sufficient to provide the deposit.

If you are going to let the property then your own income is not so much of an issue. The amount you can borrow will be largely dependent upon the rental income you can achieve. As a guide Lenders will be looking for the rent to cover 130% of the monthly interest repayments. You will need to declare your income and Lenders will make an assessment of your ability to cover any voids that may occur if the property is not let.

I recommend that you speak to an independent mortgage broker about your plans.


Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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