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Mortgage Blog: How much can I borrow?

Thursday 20th October 2016

In this blog, our Mortgage Expert Stephen Dwelley, answers the frequenlty asked questions from first time buyers trying understand how much they can borrow for a mortgage and what is affordable.

How much can I borrow for a mortgage? 4 times my income? 4.5 times, or would a lender stretch to 5 times?

Sadly, apart from the Bank of England, no institution still uses a multiple of income to provide the answer.   All lenders now use affordability calculators and credit scoring to provide the answer.

How does an affordability calculator work?

In general terms they use figures provided by the Office of National Statistics, for the average cost of living expenses i.e. for a single person, a couple, couple with one child etc.  To which they add outgoings for debt – credit cards, student loans, bank loans.  Plus other outgoings such as pension contributions, maintenance payments, childcare costs, regular travel costs, service charges etc.

They will then take the total expenditure away from your net monthly income as shown on payslips or for the self-employed as evidenced by accounts.

The difference will be the amount that is deemed available to pay the mortgage repayments.

So if the mortgage repayments are less than this amount it will be affordable?

Not quite!  In order to prove to the regulatory authorities that the mortgage will be affordable in the longer term the lenders will assume that interest rates are going to rise and will therefore factor in repayments on a loan with an interest much higher than current  rates – typically around 6% p.a.

So using a monthly higher repayment at 6% interest will provide the answer?

Not necessarily.  Mortgage lenders will often apply a credit score which will sometimes increase or more often decrease the calculated amount.

How can I find my credit score?

Credit reference agencies can provide you with a credit score BUT each mortgage lender will have compiled their own method of scoring and will never agree to divulge this. It will not be the same as that provided by the credit agencies.

So if I provide all my details to a mortgage lender the amount that they will offer as a mortgage will be much the same as other lenders?

There can be quite a considerable difference in the amount offered between lenders.  Sometimes this can be due to how they treat such items such as overtime or bonuses, in other cases the calculations will be swayed by the internal machinations of credit risk departments.

Is it possible to get any idea how much I can borrow?

Yes indeed!!

Our Share to Buy affordability calculator can indicate if a mortgage amount is likely to be considered affordable by mortgage lenders.   For the reasons given above this cannot be totally accurate but is a guide.

Ready to look for a mortgage? Use our Mortgage Comparison tool, and our team of mortgage experts can help you find a deal that is righr for you.

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