How Much Can I Borrow for a Mortgage?

1. Your income is the starting point

Lenders will usually look at the income they consider sustainable and acceptable for mortgage purposes.

Depending on your circumstances, this could include:

• Basic salary
• Overtime
• Bonuses
• Commission
• Second-job income
• Pension income
• Certain benefits or allowances
• Self-employed income

Different lenders have different rules about which types of income they’ll accept and how much of that income they’ll use.

For example, one lender may use all of regularly earned overtime, while another may only use a proportion of it.

This is one reason the amount you can borrow can vary from lender to lender.

2. It’s not just about what you earn

Lenders also look at your regular financial commitments.

These can include things such as:

• Loans
• Credit cards
• Car finance
• Childcare
• Maintenance payments
• Student loans
• Other committed expenditure

The lender uses this information to assess whether the proposed mortgage payments appear affordable alongside your existing commitments.

So someone earning £50,000 with very few commitments could receive a different affordability result from someone earning the same amount with significant monthly credit or childcare costs.

3. Does the size of my deposit affect how much I can borrow?

Your deposit and your borrowing are related, but they’re not quite the same thing.

For example, having a larger deposit may reduce the loan-to-value (LTV) of the mortgage and potentially give you access to a wider choice of products.

However, a larger deposit doesn’t automatically mean a lender will allow you to borrow more.

You’ll still need to satisfy that lender’s affordability assessment.

If you’re still working out how much you need to save, our How Much Deposit Do I Need to Buy a House? guide explains how different deposit levels and LTVs work.

4. What about four or five times my salary?

Income multiples can be a useful rough indication, but they shouldn’t be treated as a guaranteed borrowing figure.

Some lenders may potentially offer higher income multiples to borrowers who meet particular criteria, while others may restrict borrowing depending on the application.

Factors could include:

• Level of income
• Loan-to-value
• Mortgage term
• Age
• Credit commitments
• Household circumstances
• The lender’s individual affordability model

That’s why an online calculator based purely on salary can only ever provide a rough starting point.

5. What if I’m self-employed?

Being self-employed doesn’t necessarily mean you can borrow less, but lenders can assess your income in different ways.

For a sole trader or partner, this might involve looking at taxable profits.

For a limited company director, some lenders may consider salary and dividends, while others may be able to assess salary together with a share of company profits.

The number of years you’ve been trading can also affect which lenders may be available.

6. Can my credit history affect how much I can borrow?

Potentially.

Your credit history can affect which lenders and mortgage products are available to you.

However, lenders don’t all assess credit history in exactly the same way. Some applications are assessed using credit scoring, while specialist lenders may take a more individual view of the circumstances behind previous credit problems.

If you’ve had missed payments, defaults, CCJs or other credit issues, it doesn’t necessarily mean you won’t be able to obtain a mortgage

7. The mortgage term can make a difference

The length of your mortgage can also affect affordability.

A longer repayment term can reduce the monthly contractual payment, which may affect the lender’s affordability calculation.

However, borrowing over a longer period usually means paying interest for longer and potentially paying more interest overall.

The term therefore needs to be considered alongside both affordability now and your longer-term plans.

8. Why different lenders can give different answers

This is perhaps the most important thing to understand.

There isn’t one universal mortgage affordability calculation.

Every lender has its own criteria and affordability model.

One lender may be particularly accommodating towards overtime. Another may work well for self-employed applicants. Another might have different treatment of childcare costs, bonuses or existing credit commitments.

That’s why getting a lower borrowing figure from one lender doesn’t necessarily mean that’s the maximum you could borrow across the mortgage market.

9. Should I get an Agreement in Principle?

Once you have an idea of your budget and likely borrowing, an Agreement in Principle (AIP) can be a useful next step.

It can give you an indication of whether a lender may be prepared to lend the amount required, subject to a full mortgage application, underwriting and property assessment.

Estate agents may also ask whether you have an AIP when you’re making an offer on a property.

An Agreement in Principle isn’t a mortgage offer, but it can help you start your property search with a clearer idea of your potential budget.

10. Work out your budget before you start house hunting

Knowing roughly what you could borrow before you fall in love with a property can make the buying process much easier.

It allows you to consider:

Your available deposit

• Potential mortgage borrowing
  = Approximate property budget

You should also allow for the other costs involved in buying and keep your proposed monthly mortgage payment at a level you’re comfortable with.

If you’re buying your first home, our First-Time Buyer Mortgage Guide: From Deposit to Completion takes you through the complete process.