Buying a property is an exciting time and everyone has ideas as to what their ideal home will look like, but before you can even think about viewings, you need to understand how much you can borrow. Looking at properties only to find that they are out of your price range can be disheartening. The question, then, is how much can you borrow? Knowing that upfront will help you refine your search for your new home. In this article we will look at some of the deciding factors which affect how much you can borrow for a mortgage.
Lending Criteria
The lending criteria that banks need to apply to assess affordability are soon to be changed and this will allow people to borrow more based on that assessment. Typically though a mortgage lender would be willing to lend around 4.5x salary for a mortgage. So, if you earn £25k per year a lender might be willing to lend £112,500. This does depend on how risky a mortgage lender sees you as a mortgage holder and that lender’s lending criteria.
Deposit amount
The amount of deposit you have to put down will directly impact your interest rate and the larger the deposit, the lower the interest rate and the more you can afford to borrow. Typically, a 25% deposit will open up much more competitive rates for you and increase what you can afford.
Credit history
Your credit history is all important, those with poor credit scores will find it harder to get mortgages in the first place, but the ones available will have much higher interest rates to offset the perceived risk. This will increase your monthly payments meaning you might have to borrow less to make it affordable. You can check your credit score on the Money Supermarket website.
Levels of Debt
When looking at affordability, lenders will ask about existing debt and required payments such as council tax, child support payments and credit cards or loans. These payments will be discarded from your income to give a residual income which can be used for a mortgage. So, the less debt you have the more you will be able to borrow.
Help to Buy
If you are a first-time buyer then you can access the Government’s help-to-buy: Equity loan scheme, which will help you buy a new build property. The Government will, subject to certain property value caps and deposit rules lend you up to 20% of the property value (40% in London) as an equity loan. This will essentially significantly enhance your deposit and allow you to borrow more.
Ultimately how much you borrow is very dependent on your circumstances and the amount one person can borrow will be different to another person on the same salary. There are many on-line mortgage calculators, such as this one from Money Supermarket which will give an indication as to the amount you might be able to borrow, but the only sure way to find out is to get real quotes from lenders and it might pay to seek the services of a mortgage advisor who will be able to get more detailed and accurate estimates for you. If you do decide to seek mortgage advice, Mortgage Advice Bureau, who work with Newton Fallowell Estate Agents to provide our customers with expert mortgage advice can help. Their award-winning advice is tailored to your circumstances, whether you’re looking to take your first steps on the property ladder, moving home, or even investing in a buy-to-let property. They can help find the right mortgage for you and support your application every step of the way.
