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How much can I borrow on a mortgage?
Wondering how much you can borrow towards your home? The size of a mortgage in the UK will depend on a number of factors, like your income, credit history, and the size of your deposit.
So you’re looking to buy a house using a mortgage? Before you do anything, you’ll want to know how much money you’re working with. There’s no universal answer to the question: “how much can I borrow”, but we hope we can give you a rough idea, both with our calculator and this mortgage guide. A lender (whether a bank or a building society) will look at your application in order to decide just how much they’re prepared to lend you. How do they make this decision? Several factors, like your income, regular outgoings (like childcare), credit history and the size of the deposit you’d feasibly be able to borrow. Whilst your lender or broker will have the final say on how much you can borrow, as a general rule it’s sensible only to borrow what you can comfortably afford, without having to worry or strain yourself. For more information on working out what exactly you can afford, check out this page. So, let’s take a tour through the mortgage application, in order to work out what you might be able to borrow, and why a lender is giving you that amount.
As a general rule it’s sensible only to borrow what you can comfortably afford"
Mortgage Calculator
First - let our mortgage calculator give you an estimate of how much you could borrow. The main factor in deciding on the size of your loan will be your income, which is why we look at this when giving you a rough estimate of what you can borrow. Remember: when it comes down to getting a mortgage, your bank or building society will look at other factors too, like credit history and the size of your deposit, so the calculator is just a rough guide.
Getting a Mortgage in Principle
If you’ve already used a mortgage calculator to give you a ballpark figure regarding your loan, your next step is to get a Mortgage in Principle (MIP). This process is where a bank or broker will take a more detailed look at your application. This is a more specific appraisal of your credit score, income and outgoings. It will not affect your credit rating, because your bank or broker will only do a “soft search” to investigate your credit history. This will allow you to: Proceed with your house hunt knowing your budget. Let sellers and agents know that you’re serious about buying.
An MIP is more accurate than a mortgage calculator, but still isn’t a guarantee of your loan. It is a preliminary assessment from a lender indicating how much money they would be willing to lend you for a mortgage based on some basic information about your financial situation. It's not a formal offer, but it can give you an idea of how much you can afford to borrow and help you make a more informed decision when looking for a home.
Once you’ve found a house that you’d like to put an offer on, you will make a mortgage application. These are the factors that affect how much you’ll be able to borrow on a mortgage…
Your income
When you apply for a mortgage, lenders will want to ensure that you can afford to repay the amount you borrow, while also managing your other expenses. To determine how much you are able to borrow, lenders will typically assess your income and expenses, to calculate your affordability. They will also take into account any guaranteed overtime or bonuses. Most lenders will offer you a mortgage that is around 4-5 times your annual income, although this can vary depending on your individual circumstances. This means that if you earn £40,000 per year, you may be offered a mortgage of around £160,000 to £200,000. Even from as early as the mortgage calculator stage, you will be asked whether you’re buying as an individual or jointly – as a couple, for example. Banks usually only offer mortgages for up to two people, though it’s possible to find loans for up to four people. The amount of people taking out a mortgage will affect the total amount you are loaned. A couple could receive up to four times their joint salary, but it depends on the income and circumstances of both applicants.
Your type of income may also affect how much money you are able to borrow. For example, if you are self-employed: even a well paid freelance earner may find it hard to borrow as much money as a counterpart on PAYE. PAYE or “Pay as You Earn” employees represent a regularly earning or salaried cohort – lenders perceive them as less risky than those whose income may be unsteady or irregular. Similarly, if you have recently changed jobs, or are still in your probationary period, a lender may be less willing to lend the money you might expect given your salary. Some banks may be happy to give you the mortgage you would expect, but might require you to pay a higher rate initially, with an option to reduce your monthly repayments when you remortgage. So, as a rule of thumb, you could plan to borrow 4.5 times your yearly salary, but getting a Mortgage in Principle will give you a better idea of how big your mortgage will be.
Credit history
Your credit history is also an important factor when applying for a mortgage. Lenders will review your credit score to assess your reliability as a borrower. If you’re a first time buyer, you may not have any ideas on what your credit score is, or that you even had one. Your credit score is a record of how you have historically handled your money, including debts, loans and repayments. There are some ways to improve your credit score. If you have a good credit score, lenders may be more willing to lend you a larger amount of money, as it indicates that you have a history of managing your finances responsibly. On the other hand, if you have a poor credit score, you may be offered a smaller mortgage, or you may be charged a higher interest rate.
Wondering whether your mortgage application process will affect your credit score? In the case of our mortgage calculator and any Mortgages in Principle, the answer is no. A calculator does not consider your credit score, and a lender will only do a “soft search” to generate your MIP. Applying for a real life mortgage will affect your score, which is why it’s imperative that you get all your information prepared before you apply, to avoid risking submitting an ill-prepared application that will negatively affect your credit score.
Deposit size
The size of your deposit is another important factor that affects how much you can borrow. The more money you can put down as a deposit, the less you will need to borrow. A larger deposit also shows lenders that you are financially responsible and have the means to save for a significant amount of money. This can increase your chances of being offered a lower interest rate, as you are considered less of a risk to lenders. Your deposit will be made up of your savings, which you may have from putting money away each month, as a gift from a family member, from inheritance, or from winning big at your town’s annual pig racing contest. Whatever the way, your deposit has to be money that you currently have, not money that you predict you might have (if the future pig race goes your way). So, if you find that your broker or bank is unable to lend you the amount that you expected (or were wishfully thinking of) go back to your savings. By increasing your deposit, you’ll need to borrow less.
How can you save more? We know the current inflation rates in the UK mean that saving has become much harder than a few years ago, but there are a few ways (other than…well…spending less): Consider moving in with family or friends (either for free or for “mates rates”) to save some pennies on rent, which has been very high since the end of 2022. Ask for a promotion or pay rise at work, particularly if you have not been offered any increase in your salary in line with inflation. Consider looking for a similar job at a higher paying company. You can compare salaries online, so shop around and see if you could be earning more elsewhere. Use budgeting or saving apps, which should help to curb your spending. Invest in a lifetime ISAs, a savings scheme where the government will add a 25% bonus to your savings, up to £1000. You can invest up to £4000 a year. This is an easy way to make your money work harder for you.
Type of house
The type of house you’re buying may affect the amount that you are able to borrow, or even if you qualify for a mortgage at all. Surveys and searches will take place during the buying process, which allow your lender to confirm that the property is worth what they are lending you. If a property isn’t what you might consider a “standard” purchase (a sturdy terraced house, for example, or a bungalow) then it may be considered a “non-standard” property. This type of property could include usual buildings, derelict properties, or homes built of materials your lender deems as high risk. In this instance, your ability to borrow may be affected. A mortgage broker can be a very useful person to help you navigate this situation. The amount you’re able to borrow may also be affected by your intentions for the property. For example, if you’re buying a home with the intention of renting it out, you will get a buy-to-let mortgage. These are different from standard mortgage in a few ways: Interest rates: The interest rates on buy-to-let mortgages are generally higher than those on residential mortgages, reflecting the greater risk that lenders perceive in lending for rental properties. Fees and charges: Buy-to-let mortgages typically have higher fees and charges than residential mortgages, including arrangement fees, valuation fees, and legal fees. Tax implications: There are different tax implications for buy-to-let properties compared to residential properties. Landlords are required to pay income tax on their rental income and may also have to pay capital gains tax when they sell the property. Repayment type: Most buy-to-let mortgages are based on interest-only repayments. This is what it says on the tin - your monthly repayments are interest-only, so you’ll be paying back only the interest accrued on your loan, rather than chipping away at the loan itself. With these extra costs, could becoming a landlord mean you need to borrow more money in order to afford your buy-to-let plans? It’s worth considering.
Will my mortgage size be affected by the current Bank of England base rate?
Yes, the current national interest rate can affect how much money you can borrow for a mortgage. The interest rate or mortgage rate is the amount of money that you will pay on top of the amount you have borrowed, and it is usually affected by the Bank of England’s base rate, which is what they declare to be the national interest rate. When interest rates are low, you may be able to borrow a larger amount of money, as your monthly payments will be more affordable. On the other hand, when interest rates are high, you may be offered a smaller mortgage, as your monthly payments would be higher, and it may be more difficult to afford the repayments. However, it's important to note that the exact impact of a change in the base rate on your mortgage rate will depend on a range of factors, including the type of mortgage you have, whether it's a fixed or variable rate, and the terms of your specific mortgage agreement. It's always a good idea to check with your mortgage provider or a financial advisor to understand how changes in the base rate may impact your mortgage payments.
Overall, when determining how much you can borrow as a mortgage, lenders will take all of these factors into account to assess your affordability and risk as a borrower. It's important to speak with a mortgage advisor or financial expert to determine how much you can comfortably borrow and repay, based on your individual circumstances.
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