What Affects How Much You Can Borrow for a Mortgage? 5 Things Lenders Consider

1. Your Income and Employment

Your income plays a significant role in determining how much you may be able to borrow.

However, lenders don’t simply look at your annual salary and multiply it by a fixed number.

They’ll also consider how your income is earned, how consistent it is and whether it meets their lending criteria.

For example, you might be:

• Employed with a fixed annual salary
• Receiving overtime, bonuses or commission
• Self-employed as a sole trader
• A limited company director
• Working on a fixed-term contract
• Receiving income from multiple sources

Different lenders can take different approaches to these circumstances.

Some may consider a proportion of your overtime or bonus income, while others may use an average over a particular period.

For self-employed applicants, lenders may assess taxable profits, salary and dividends or, in some circumstances, salary and a share of company profits.

The important thing to understand is that two applicants earning the same amount may not necessarily be assessed in the same way.

And even when your income is straightforward, different lenders may calculate your maximum borrowing differently.

2. Your Existing Financial Commitments

Your income is only one side of the affordability calculation.

Lenders also need to understand what you’re already spending each month.

This can include:

• Personal loans
• Credit card balances and repayments
• Car finance agreements
• Student loan repayments
• Childcare costs
• Maintenance payments
• Other regular financial commitments

For example, someone earning £50,000 per year with very few financial commitments may have a different borrowing capacity from someone earning the same amount but paying £500 per month towards loans and car finance.

That’s because lenders assess how comfortably you may be able to afford your proposed mortgage payments alongside your existing commitments and living costs.

Does that mean I should pay off my debts before applying?

Not necessarily.

Reducing certain financial commitments may improve your borrowing position, but using savings to repay debts could also reduce the deposit you have available.

The right approach depends on your circumstances, the type of borrowing involved and the lender’s criteria.

It’s worth discussing your options before making significant financial changes purely to improve a mortgage application.

3. Your Deposit and the Property You’re Buying

Your deposit is another important consideration.

The relationship between the amount you’re borrowing and the property’s value is known as the Loan to Value (LTV).

For example, if you’re buying a property for £250,000 with a £25,000 deposit, you’d need a £225,000 mortgage.

That represents a 90% LTV mortgage.

Generally, a larger deposit can give you access to a wider selection of mortgage products and potentially more competitive interest rates.

However, that doesn’t mean everyone needs a 20% deposit.

There are lenders offering mortgages with 5% or 10% deposits, and certain eligible applicants may even have access to 100% mortgage options.

Availability will depend on the lender, the property and your individual circumstances.

It’s also important to remember that having a larger deposit doesn’t automatically mean a lender will offer you a larger mortgage.

You’ll still need to meet its affordability and lending requirements.

The type of property you’re purchasing can also affect which lenders and mortgage products are available.

4. Your Credit History

Your credit history helps lenders understand how you’ve managed borrowing and financial commitments in the past.

But contrary to what many people believe, there isn’t one universal credit score that determines whether you’ll be accepted for a mortgage.

Different credit reference agencies use different scoring systems, and mortgage lenders apply their own lending criteria.

They may consider factors such as:

• Your repayment history
• Existing borrowing
• Missed or late payments
• Defaults or County Court Judgments (CCJs)
• Recent credit applications
• How much of your available credit you’re using

Having a less-than-perfect credit history doesn’t automatically mean you won’t be able to obtain a mortgage.

Some lenders have more flexible criteria than others, particularly where previous financial difficulties have been resolved or occurred some time ago.

However, credit history can affect lender choice, the mortgage products available and, in some circumstances, how much you may be able to borrow.

Understanding your credit position before making mortgage applications can help avoid unnecessary surprises.

5. Your Mortgage Term and Overall Affordability

The length of your mortgage can also influence affordability.

For a repayment mortgage, spreading the borrowing over a longer term will generally reduce the monthly payments compared with repaying the same amount over a shorter period, assuming the interest rate remains the same.

For example, a mortgage repaid over 35 years will generally have lower monthly payments than the same mortgage repaid over 25 years.

However, a longer term also means you’ll usually pay more interest overall.

Some lenders may allow longer mortgage terms than others, depending on factors such as your age, anticipated retirement income and their lending criteria.

Lenders will also assess whether the mortgage remains affordable under their applicable affordability requirements.

This is why the amount you can borrow isn’t determined by your salary alone.

It’s about the overall picture of your finances and whether the proposed mortgage is affordable.

What Affects How Much Mortgage You Can Borrow? Why Lenders Differ.

This is one of the questions we’re regularly asked.

You might approach one lender and be told you could borrow £220,000, while another lender’s assessment suggests a different amount.

How can that happen when your income and circumstances haven’t changed?

The answer is that each lender has its own affordability model and lending criteria.

They may take different approaches to:

• Income multiples and maximum borrowing limits
• Overtime, bonuses and commission
• Self-employed income
• Existing financial commitments
• Household expenditure
• Dependants and childcare costs
• Mortgage terms
• Credit history
• The type of property being purchased

This means that an applicant who doesn’t meet one lender’s affordability requirements may still have options elsewhere.

Equally, the lender offering the highest borrowing amount isn’t necessarily the lender offering the most suitable mortgage.

Interest rates, fees, monthly payments, product features and your longer-term plans should all be considered.

Is the Maximum Amount I Can Borrow the Amount I Should Borrow?

Not necessarily!

Just because a lender may be prepared to offer a particular amount doesn’t automatically mean borrowing the maximum is right for you.

It’s important to think about what you’re comfortable paying each month, both now and in the future.

You may also want to consider:

• Potential changes to household income
• Future childcare or family costs
• Home maintenance and unexpected expenses
• Other financial goals
• How your mortgage payments could change when an initial deal ends

A mortgage should work alongside your wider financial commitments, rather than leaving you stretched every month.

How Can a Mortgage Broker Help?

Online mortgage calculators can be a useful starting point, but they generally can’t assess every detail of your circumstances or compare the full range of individual lender criteria.

At Liberty Money, we’ll take the time to understand your income, commitments, deposit, credit history and property plans.

We can then explore suitable lenders and help you understand:

• How much you may be able to borrow
• Which lenders may be appropriate
• What your monthly mortgage payments could look like
• How your deposit affects your options
• Whether there are any potential issues worth addressing before applying

Whether your circumstances are straightforward or a little more complicated, understanding your options early can make planning your next property move much easier.

Understanding what affects how much mortgage you can borrow can help you plan your property search with greater confidence and avoid unexpected surprises when applying.

For further information about mortgage affordability, you can also visit the MoneyHelper website for free, impartial guidance.