How much can I actually borrow on my mortgage?
One of the first questions I’m asked when speaking to someone who is thinking about buying a home is:
“How much can I actually borrow?”
It’s a completely understandable question. Before you start looking seriously at properties, you want to know what sort of budget you’re working with.
The difficulty is that there isn’t a straightforward answer based purely on your salary.
Over the years, I’ve seen plenty of situations where two clients with almost identical incomes have been able to borrow very different amounts. Equally, I’ve worked with clients who initially assumed they wouldn’t be able to borrow enough, only to find that there were lenders whose affordability calculations worked much better for their circumstances.
That’s why I always recommend looking at the full picture rather than relying on a simple salary multiple.
Your income is only part of the calculation
Your income is obviously one of the biggest factors a lender will look at.
For employed applicants, this will usually start with your basic salary, but depending on the lender and your circumstances, other income may also be taken into account, such as:
Overtime
Bonuses
Commission
Shift allowances
Other regular allowances
The important point is that not every lender treats additional income in the same way.
For example, I’ve dealt with cases where overtime made a significant difference to the amount a client could borrow. One lender might use a percentage of that income, while another may have a different approach depending on how consistently it has been received.
Self-employed applicants can be slightly more complicated.
Depending on how the business is structured and the lender involved, they may consider things such as salary, dividends, net profit or other figures shown in the accounts and tax calculations.
This is one of the areas where speaking to a broker early can be particularly useful. It can be frustrating to find your ideal property and then discover that the lender you initially approached doesn't assess your income in the way you expected.
Your monthly commitments can make a big difference
This is something I see regularly when carrying out affordability assessments.
Two people could both earn £50,000 a year, but that doesn't necessarily mean they'll be able to borrow the same amount.
A lender will look at your existing financial commitments, which could include:
Car finance
Personal loans
Credit cards
Childcare costs
Student loan repayments
Maintenance payments
Other regular commitments
For example, someone with a car finance payment and a personal loan may have noticeably less borrowing capacity than someone on the same salary with very few commitments.
This is why I’m always cautious about calculators or online articles that suggest you can simply multiply your salary by four or five times and arrive at your mortgage figure.
They can be useful as a starting point, but they don't take into account the detail of your individual circumstances.
Your deposit matters too
Your deposit is another important part of the equation.
For example, if you're buying a £300,000 property with a £30,000 deposit, you'd need a £270,000 mortgage.
If you had a £60,000 deposit, you'd only need to borrow £240,000.
That changes your loan-to-value (LTV), which can affect the mortgage rates and products available to you.
I’ve also seen clients focus heavily on trying to maximise their borrowing when sometimes increasing the deposit slightly can improve the overall mortgage options available.
It isn't always about borrowing the absolute maximum.
Sometimes the better question is:
“What mortgage gives me a comfortable monthly payment while still allowing me to buy the right property?”
Don't forget the other costs of buying a home
It’s very easy to focus on the deposit and mortgage and forget about the other costs involved in moving.
Depending on your circumstances, you may also need to budget for:
Solicitor's fees
Mortgage fees
Valuation or survey costs
Removal costs
Buildings and contents insurance
Stamp Duty Land Tax, where applicable
Moving and initial property costs
I always encourage clients to leave themselves some breathing room rather than putting every available penny into the deposit.
Buying a home is expensive enough without starting your first few months there worrying about how you're going to pay for the unexpected costs that inevitably come with moving.
So, how much can you actually borrow?
The honest answer is: it depends.
Your income, expenditure, deposit, employment status, credit history, dependants and the type of property you're buying can all play a part.
Most importantly, different lenders have different affordability calculations and lending criteria.
That's why getting an indication of your borrowing capacity before you start viewing properties can be so useful.
It gives you a realistic idea of your budget and, just as importantly, helps you understand what your monthly mortgage payments could look like.
Start with your borrowing capacity
If you're considering buying a home and want to understand what you could potentially borrow, our mortgage affordability calculator can give you a useful starting point.
If you'd prefer to talk through your circumstances, Matthew Bugden Mortgages can look at your individual situation and help you understand what your options may look like across the mortgage market.
There isn't a one-size-fits-all answer when it comes to mortgages. Sometimes it's the details of your circumstances that make the biggest difference.
The information provided is for general guidance only and does not constitute mortgage advice. Mortgage availability and affordability are subject to individual circumstances, lender criteria and the information available at the time of application. Your home may be repossessed if you do not keep up repayments on your mortgage.