How Much can I borrow?

"How much can you borrow" and "how much can you afford" are normally two separate considerations though many make the mistake of focusing on how large a mortgage they can obtain. In this mortgage article we look at what you can borrow and what you can afford. The aim of this article is to provide you sufficient financial information and considerations so that you make a sensible informed choice when you commit to a mortgage product.

How Much can I borrow?

The amount you can borrow will depend on the following considerations:

  1. The amount you have saved/acquired as a mortgage deposit
  2. Your other financial commitments (loans, credit cards, general outgoings)
  3. Your personal situation (married/partnership, children)
  4. The term of the mortgage (the time is will take you to repay the mortgage)
  5. Your credit score
  6. Any county court actions or judgments against you related to your finances
  7. The type of property (you cannot secure a mortgage on certain types of property)
  8. The location of the property (if in a high flood risk area for example)
  9. The condition of the property (does work need to be completed to make the property safe/habitable)

That may seem like a lot of considerations but they are designed to protect you and the mortgage lender. If something happens to the property you don't want to be left with a large loan and nothing to show for it. From a lenders perspective, they want to ensure that their investment is protected should something go wrong. The rules and conditions are there to protect both you and the lender though it may not feel that way if you are struggling to secure a mortgage.

Use our mortgage affordability calculator to calculator how much you can borrow.

How much can you afford?

Affordability is far more important than what you can borrow. Depending on the economic an financial state, mortgage lenders will aim to provide you the maximum mortgage they can calculate based on your financial situation. That may seem great when you see a large figure to go house hunting with but, think it through. Can you really afford the monthly mortgage repayments? What if something goes wrong, if you are ill or need to give up work? Always think through and plan your monthly finances ahead of taking a mortgage. You must be honest with yourself, only you can work out what your really can afford to spend each month.

We suggest you use our monthly budget calculator to produce an illustration of your monthly outgoings, this should include your financial costs once you have the mortgage and have moved into your new home. Consider:

  1. Council Tax
  2. Gas, electric and water charges
  3. Moving Home? Budget for your move.
  4. Any personal loans
  5. Any car finance
  6. Child Care costs
  7. Fuel / commuting costs
  8. Any Credit Card repayments
  9. The monthly mortgage repayment
  10. The monthly food bill
  11. Eating out and entertainments costs
  12. TV Licence and other TV package costs
  13. Telephone
  14. Mobile Telephone
  15. Broadband
  16. And so on.

Working out what you can afford will help you to secure your mortgage. Mortgage lenders want the confidence that their money is safe with your hands. They will look for evidence that you have fully considered your financial status both before securing the mortgage and afterwards.

A good mortgage lender will challenge you on your budget and query how you will manage if interest rates go up. How would you manage? How much would you monthly repayment be if the interest rates increased?

We suggest you use our mortgage calculator to calculate your monthly mortgage repayment costs and enter higher interest rates so you can understand how high your monthly mortgage repayments could get to. Think about that, how would you manage? Our aim here is to ensure you have thought through your finances, we don't want to deter you fro buying your own home. Many have made the mistake of overcommitting themselves financially and have later lost their homes. Our aim is to prevent you being one of those unfortunate people.

Mortgage lenders will typically calculate how much you can afford to borrow by reviewing your annual salary and that of your partner if applying jointly. You can use our mortgage affordability calculator to get an estimate of how much you could borrow. Remember, all mortgage lenders have their own unique rules, some will lend more or less, that is their prerogative and based on their own financial risk assessments. At this stage, the main thing is to have an estimation while you start to look around at what properties are available.

Next: Where do I get a Mortgage?

Previous: What types of mortgages are there?

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