How much can I borrow for a mortgage? What factors affect how much I can borrow? And what are the risks of borrowing? We answer these questions and more.

Banks and building societies used to base mortgage calculations on one simple factor. Your income.

But regulatory changes in recent years have made things slightly more complicated.

Today, mortgage lenders consider a number of factors when deciding how much money to lend you.  

But first, it’s important to understand the lending process. 

What exactly is mortgage affordability?

Let’s start with the basics. 

Mortgage affordability describes how much money an individual can afford to borrow from banks and building societies for a mortgage. And how much they can afford to pay back each month.

One of the initial steps in securing a mortgage loan is an affordability assessment between a potential buyer and a lender. 

During this process, your lender determines how much you can afford to borrow. They also thoroughly check whether or not you have the means to pay the monthly mortgage repayments for the duration of a mortgage term. 

During a mortgage affordability assessment, a lender will ask you to confirm your total income each year. They’ll most likely want to see payslips and your P60 form. Remember to inform them of any additional income to your regular salary.

You also need to fully list your outgoings. These are deducted from your income to evaluate how much you can afford to borrow. 

The key factors lenders consider

When calculating your mortgage affordability, lenders consider:

  • Your income

  • Your essential outgoings

  • Discretionary spending

  • Future interest rates

  • The size of your deposit

  • Your age

  • Your credit score

Your income

Your income remains the key factor that lenders consider when assessing how much you can afford to borrow for a mortgage.

As a general rule, lenders typically advance between 4 and 4.5 times your total household income. 

So, without considering outgoings, those on higher salaries should be able to borrow more than those on lower salaries. This is known as a ‘higher income multiple’.

The logic behind this is that people on higher salaries are more likely to be able to meet their mortgage repayments.

These calculations primarily focus on your regular monthly income. Though some lenders consider overtime, bonuses and commission.  

Your essential outgoings

Your income is only one side of the coin that lenders consider when deciding how much to loan to you.

Banks and building societies want to make sure that you can afford your repayments in reality. Not just on paper.

So they also look at your essential outgoings. 

Some essential outgoings include: 

  • Heating bills

  • Schools fees and childcare

  • Electricity

  • Food

  • Commuting costs

  • Car maintenance 

Lenders calculate how much money you have left over after you’ve paid all your essential outgoings. 

Discretionary spending

Affordability calculations do not end with your essential outgoings. 

Lenders also want to know how you spend your money in other areas.

They check how much you spend on less ‘essential’, but equally important things. 

These might include: 

  • Gym memberships

  • Entertainment

  • Eating out

  • Holidays

  • Shopping

  • Other non-essential travel  

Lenders typically look at your spending patterns for three to six months before you apply for a mortgage. So it’s worth looking into your own financials well in advance of applying for a mortgage.

The aim of doing this is to make sure that you can afford repayments while continuing with your current lifestyle. Remember, it’s the lender who’s out of pocket if you cannot repay.

Future interest rates

Mortgage lenders must be sure you can repay your mortgage if interest rates rise above the average standard variable rate (SVR). This is known as ‘stress testing’. 

Each lender sets its own standard variable rate (SVR). As the average SVR is around 3.85%, how much you repay each month could increase by about 8%.

This part of the affordability test can have a significant impact on how much you’ll be able to borrow.

Future outgoings

Not only do lenders think about future affordability in terms of interest rates, but they also consider it in relation to your future outgoings. 

For example, if you’re pregnant or have young children, your lender needs to be sure you can afford future childcare on top of your current outgoings.

The number of children you have also makes a difference because lenders factor this into their affordability calculations. They look at potential schools fees, future university funds and family holidays.

The size of your deposit

Affordability is not the only factor lenders think about when deciding how much to lend you. 

Banks and building societies also calculate the size of your mortgage deposit.

Generally speaking, borrowers with large deposits are seen as being lower risk. This is because a larger deposit means you’ll need to borrow less. The bigger your deposit, the lower the loan-to-value (LTV).

Lenders are more likely to advance a larger loan to you if you’re borrowing a lower proportion of your property’s value.

Your age

Your age also plays a role in how big a mortgage you can get. 

Lenders want to be sure that you can repay what you’ve borrowed before you retire. This means they’re less likely to lend higher sums to people who are nearing retirement.

This is because your monthly income usually decreases once you retire.

Your credit score

Lenders will check your credit score to decide whether or not you are eligible to borrow money.

You can check your credit score with credit reference agencies (CRAs). 

In the UK, you have three different credit scores calculated by three different credit reference agencies. These agencies are:

  • Experian

  • Equifax 

  • TransUnion

These CRAs gather information about your credit history and use it to build your credit report. Then, they calculate your score.

Not all lenders report to every CRA to enquire about your credit history. This means that one CRA might have information about your credit history that the other does not. This could lead to discrepancies across your three credit scores.

If you regularly check your credit report for errors, you will avoid the risk of such discrepancies.

What are the risks of borrowing?

The biggest risk of borrowing is that you cannot afford to make repayments consistently for the duration of your term. 

You need to ask yourself important questions before borrowing. 

Do you have job security for the future? What do your future plans look like and how will they impact you financially? Are you already in debt?

If you do not ask yourself these questions, apply for a mortgage and get rejected, it will negatively impact your credit score.

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The information and data in this article was correct at the time of publishing and every attempt is made to ensure its accuracy. However, it may now be out of date or superseded. Zoopla Ltd and its group companies make no representation or warranty of any kind regarding the content of this article and accept no responsibility or liability for any decisions made by the reader based on the information and/or data shown here.
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