This guide was last updated 21 February 2024
Before we dive into the nitty-gritty of numbers, let’s talk about what you can comfortably afford. Your dream home shouldn’t be a financial nightmare. So, let’s get real about your monthly budget. What are your regular expenses? How much do you love those weekend getaways? Remember, life doesn’t stop when you get a mortgage.
Lenders aren’t just nosy; they need to know your financial ins and outs to decide how much they’ll lend you. This includes your income, outgoings, debts, and credit score. They use this info to calculate a thing called ‘affordability’. In simple terms, can you afford the monthly payments without living on instant noodles?
When calculating how much you can borrow, your salary is just the starting point. Got bonuses? Overtime? Maybe a side hustle? Lenders will consider these too. But remember, they’re a cautious bunch. They’ll take a conservative view of your income, especially if it’s variable.
Be upfront about your outgoings. Lenders will look at your regular expenses – think bills, groceries, and those Netflix subscriptions. If you’re spending like a royal but earning like a commoner, lenders might get jittery.
Got existing debts? Lenders will take these into account. This includes credit card balances, loans, and even your car finance. The more debt you have, the less you’ll likely be able to borrow. It’s about showing you’re not juggling more than you can handle.
Your credit score is like your financial street cred. It shows lenders how reliable you are at paying back money. The better your score, the more likely you’ll get a thumbs up for a bigger loan. So, keep on top of those bills!
The more you can put down as a deposit, the less you need to borrow. And lenders love that. It reduces their risk and can get you better mortgage rates. So, if you’ve got a hefty savings piggy, it’s time to smash it open.
Here’s a rough guide: lenders typically lend up to 4.5 times your annual salary. So, if you earn £30,000 a year, you might get up to £135,000. But remember, this is a ballpark figure. The actual amount can be higher or lower depending on your situation. In fact, depending on your circumstances, you may be able to get over 5 times your income.
Lenders will test your affordability, also known as a ‘stress test’. This means lenders will test your affordability to ensure you can keep up your mortgage repayments along with all your other day to day living expenses. They will review your incomings and out goings along with any debts you may have. It’s like preparing for a rainy day, but with finances.
Every situation is unique. That’s why chatting with us can make a world of difference. We’ll help you understand how much you can borrow and guide you through the whole process. Think of us as your mortgage sherpa.
Remember, getting a mortgage is a big step. It’s not just about how much you can borrow, but how much you should borrow. Stay realistic, plan for the future, and don’t forget to have a life outside of your mortgage payments. Ready to chat? We’re here to help – with a smile and some solid advice.
Happy house hunting!
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.