The amount of mortgage you can afford will depend on a number of factors, including your income, your expenses, and the type of mortgage you choose.
To get an idea of how much mortgage you can afford, you can use a mortgage affordability calculator. These calculators will ask you for information about your income, your expenses, and the type of mortgage you are interested in. They will then use this information to give you an estimate of how much of a mortgage you can afford.
However, it is important to remember that these calculators are just estimates. The actual amount of mortgage you can afford will depend on your individual circumstances, so we hope this blog gives you more information about what mortgage you can get.
What Do Lenders Look at for Mortgage Affordability?
As a lender looking to complete their calculations on what mortgage you can get, there are a few different considerations they must have in mind before approving or declining the application. Here are some of the most common:
- Your income
- Your expenses
- Your debt
- Your savings/investments
- Your debt-to-income ratio
- Your age
- Number of dependents
#1 - Your Income
Your income is the amount of money you earn each month from your job or other sources. To calculate your income, add up all of the money you earn each month. Get your payslips out, look at any other income- 2nd jobs, benefit income, pensions.
#2 - Your Expenses
Your expenses are the amount of money you spend each month on things like housing, food, transportation, and entertainment. To calculate your expenses, add up all of the money you spend each month. Look through your bank statements as a good staring point.
#3 - Your Debt
Your debt is the amount of money you owe on things like credit cards, loans, and student loans. To calculate your debt, add up all of the money you owe. It is advisable to get a copy of your credit report so you can see an overview of what your personal debt looks like, with any information from your credit cards, student loans, and more.
#4 - Your Savings/Investments
Savings are the amount of money you have in the bank or other savings accounts and investments in your investment/retirement accounts. To calculate your savings, add up all of the money you have in savings, as this is going to be important when looking at interest rates for your deposit.
#5 - Your Debt-to-Income Ratio
Your debt-to-income ratio is the amount of debt you have compared to your income. To calculate your debt-to-income ratio, divide your total debt by your annual income. This isn't going to mean much to you at this stage, but lenders do look at how much debt you have in relation to your income.
#6 - Your Age
Your age does play a factor in this, because if you’re young, you may still have a lot more of your student debt to pay off, along with a lower income, etc., and it will also decide the term of the mortgage. If it’s a longer term also, it will be a more affordable repayment plan.
#7 - Number of Dependents
If you have one or more people relying on you financially, this puts your finances under more pressure, which ultimately makes it harder for the lender to know whether you’ll be able to pay back your mortgage on time. This will be taken into consideration.
What Mortgage Can I Get on My Salary?
When lenders are calculating what mortgage you can get on your salary, it will totally depend on your personal circumstances, but a lot of the time it will be between 4-5x your annual salary (more so leaning towards 4-4.5x your annual salary).
One-Person Example:
Let’s say you earn £30,000 per year, and as we said, most lenders will offer somewhere between 4x – 4.5x your salary, so that could look like:
* This is purely for illustrative purposes. What your lender will offer you will totally depend on your own personal situation.
So, on a £30,000 salary, you may be able to borrow between £120,000 and £135,000, depending on things like your credit score, monthly outgoings, deposit size and how secure your income is.
Joint Income Example
Now, let’s imagine you are buying with your partner. You earn £30,000, and they earn £28,000, giving you a combined income of £58,000 per year.
Using the same rough lending range of 4x-4.5x income, that could look like:
So together, you could be looking at borrowing roughly £232,000 to £261,000, but once again, this is depending on your spending, debts, deposit, credit history and how stable your income is. This is for illustrative purposes only!
How Much of a Deposit Do You Need?
Typically, 5% is the minimum deposit on a mortgage you will need. Therefore, judging by the average property price in the UK (currently sitting at just over £270,000), you will need at least £13,500 based on that property price.
Of course, house prices around the country differ massively, so this will change depending on your property price.
Remember, though, if you can provide a deposit of between 10%-20%, you will reduce the LTV (loan to value), meaning you may be able to reduce interest rates and get a cheaper mortgage on a nicer property.
It’s always best to speak to a professional in this situation to see what the best options are for you when borrowing for your new home, to make sure you’re getting the best deal and most affordable interest rates.
What is the Loan to Value (LTV)?
The loan-to-value ratio is essentially how much you’re borrowing compared to the property price in full. So, if you put a 10% deposit down, that means you’re borrowing 90% of the property value, so you have a 90% LTV.
Here are some other examples to break it down visually:
When you have a lower LTV, lenders will generally see this as less risky, as in most cases, you will have lower monthly repayments, as you own more of your home.
How Much Does Credit Score Affect Mortgage Rate?
If you have a low credit score, this typically means you will have access to worse interest rates, and you will also find it harder to get approved for a mortgage. This, overall, can make your mortgage more expensive over your lifetime and could potentially impact your monthly budget.
Even a subtle difference of interest rates over a 30-year period can make a massive difference to how much you are paying - let’s take a look:
* This isn’t exact; this is just an example to show you how much a percentage point difference could make to your mortgage payments over a long period of time. This is for illustrative purposes only.
Getting the Home You Always Wanted
Ultimately, the amount of mortgage you can afford will depend on your individual circumstances, and that’s why it’s important to speak to a mortgage advisor to get more tailored advice.
In doing so, you will then only have to start looking for a mortgage once, as an independent mortgage adviser can then compare interest rates, fees, and terms from different lenders.
You should also be sure to get pre-approved for a mortgage before you start shopping for a home- this is called a decision in principle. This will show sellers that you are serious about buying a home and that you have the financial means to do so. A fully qualified mortgage broker can do this for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
There may be a fee for mortgage advice. We will not charge a fee for protection advice.
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