Guide to How Much you can Borrow on a Mortgage
How much can I borrow on a mortgage is one of the first things to think about when buying or moving home.
The amount you can borrow on a mortgage will depend on your income and whether you want to buy the property on your own or with someone else.
The exact amount will depend on your individual circumstances, but these guidelines will give you a good idea how to calculate the income a mortgage lender will use before applying their affordability calculator.
What are Affordability Calculators?
It would be simple if all mortgage lenders calculate how much you could borrow in the same way however this is not the case. Since April 2014 mortgage lenders have stopped using income multipliers to calculate how much they will lend to you.
With an affordability model to calculate how much you can borrow lenders will take into consideration many things such as members in the household, no of children and monthly household expenses. Some lenders will also take into consideration pension contributions and other deductions from your salary.
With this in mind it advisable to speak to an advisor would will able to establish your monthly budget and help find a lender for you. For a guide are section on affordability calculators has links to some mortgage lenders calculators to give you a guide.
Your home may be repossessed if you do not keep up repayments on your mortgage
What Income is Used?
How much you earn
For employed people this is based on all of your annual basic salary. Mortgage lenders will then look at your additional income, overtime, commission, bonuses and second jobs. These are all taken into consideration, however not all mortgage lenders will take 100% of this income. You may also be in receipt of maintenance payments, tax credits and have other regularly monthly income that may be taken into account as your annual income by some mortgage lenders. If you have any income other than basic salary that you need to take into consideration it would be advisable to discuss this with a mortgage advisor.
If you are self-employed the amount of mortgage you can borrow is based on your business accounts and will probably be calculated using your net taxable income. Many mortgage lenders require at least 2 years of accounts or SA302'S to assess your net income if this is not available than the minimum is 1 years accounts with some lenders.
Your commitments
Before a Mortgage Lender applies it’s lending income multiple to your earnings to calculate how much you can borrow it will ask about your financial commitments. Typically any regular credit commitments which have 6 months or more to run will be deducted as an annual payment from your gross income before the mortgage lender uses their income multiples to calculate how much you can borrow.
Mortgage Budget Planner
Try Go Direct's mortgage budget planer to calculate how much you can afford for your new mortgage
Still Confused?
How much can I borrow? If you're still not sure we have dedicated mortgage advisors to help you find out how much you can borrow on a new mortgage.
