When it comes to buying a house, working out how much you can borrow for your mortgage is the natural first step.
Your salary is a key factor when it comes to how much you can afford to borrow. Unfortunately, it’s the one thing that you may have little control over – maybe pay rises are unlikely or your salary is limited by your industry or field of work.
As a general rule of thumb, lenders will allow you to borrow up to 4.5x your income, provided that you meet the rest of their criteria. So, if you earn £25,000 per year, you should be able to borrow £112,500.
If you’re buying with a partner the amount you can borrow tends to be reduced slightly to around 4x your income. If your partner also earns £25,000 per year (giving you a combined annual income of £50,000), you should be able to secure a loan of £200,000. It should be noted that this is a general rule and each lender will have their own method of affordability testing. These days, affordability testing is much more rigorous and most lenders will take a more holistic view, using a range of criteria to assess your affordability.
If you don’t fancy sitting down with your calculator, PropertyPal Mortgages has an affordability calculator which will do the maths for you and give you instant results. Click here to use our affordability calculator.
Once you’ve found out your basic mortgage affordability, the next step is to check your eligibility, pre-approved for a mortgage and find out exactly how much you can borrow.
How do I get pre-approved for a mortgage?
PropertyPal Mortgages has a very handy pre-approval tool which allows you to check your eligibility against a variety of lenders and find out exactly how much you can borrow. It takes just five minutes and once you have your pre-approval certificate, you can show this to estate agents and sellers when you’re looking for houses to prove that your serious and ready to buy. Most estate agents will ask for proof of mortgage pre-approval when you’re putting in an offer. Click here to get pre-approved for a mortgage now.
Mortgage affordability issues and how to resolve them
When it comes to mortgage affordability, there are some issues that may get in the way. The guide below shows the most common issues with some advice on how you might approach and tackle them.
Common mortgage affordability issues and how to resolve them
|Debt||Lenders will consider how much you owe on personal loans and credit cards etc and how you’ve been paying these off so far. If you have a large amount of outstanding debt or have missed some repayments, this may make you more of a risk to the lender and put your mortgage in jeopardy.||Make a realistic plan to pay off outstanding debt as quickly and efficiently as possible without compromising your finances in another way.|
|Self employment||When you’re self employed it can be harder for you to prove your income, as you’re unlikely have a steady monthly salary. Lenders may have objections to granting you a mortgage if you have been self-employed for 18 months or less.||Have at least two years of accounts or self-assessment tax returns available.|
|Career path||Lenders like consistency, so if you have jumped from job to job in recent years, spending no longer than three months at a time in each position and earning different salaries, you might have trouble proving to lenders that you are low risk.||Aim to stay in the same job with a steady salary for a minimum of six months.|
|Having a child||When there has been a major change or disruption to your financial circumstances (such as having a child), you might face more scrutiny. Lenders want to see a consistent and settled financial picture. During the affordability test, lenders may ask about your plans to extend your family.||Some things simply can’t be planned for but when possible, have an idea of how any upcoming life changes may impact your finances.|
|The mortgage amount||You might have your heart set on that £300,000 countryside home, but if the bank is only willing to lend you £100,000, you’re either going to have to magically stumble upon a large sum of cash or significantly adjust buying plans.||Be realistic about how much you’ll be able to borrow, as being rejected outright for a mortgage can have negative consequences when it comes to future applications.|
|Your expenses||Lenders will look carefully at your expenses, such as childcare, your pension contributions, as well as your grocery bills||Go through your own bank statements – your subscriptions and direct debits and remove any payments that are unnecessary. Cleansing these payments might reduce your outgoings significantly. |
You should also go through your general spending with a fine tooth comb and see where you could cut back. Whilst skipping your yearly holiday or going from two cars to one will help, small changes can also make a big impact. For example, cutting out your daily coffee could save you up to £700 a year and limiting weekly pizza takeaways to fortnightly, could save you around £500.
|Your savings||Whilst it’s important to save and is a sign of being financially responsible, you should ensure that you aren’t being too ambitious with your savings.||For example, if you’re putting £300 per month away into an ISA, but typically going £150 into your overdraft, you might want to reduce the amount you’re saving, so you can get through the month.|
Planning ahead, getting organised and budgeting is key when it comes to resolving affordability issues.
As some lenders will request up to 6 months of bank statements, you should aim to be in a stable and consistent financial situation for that amount of time. This means having money left over at the end of the month, no going into the overdraft and ideally being able to save a bit.
If your issues are complex (such as have a large amount of debt), set a goal and make a longterm plan of how to get there. If they are smaller, use tools at your disposal (apps or online spreadsheets) to set a monthly budget and track your spending.
For more information, visit PropertyPal Mortgages or call us on 028 90 999 999.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
PropertyPal Mortgages Ltd, registered in Northern Ireland at Unit 2D, Jennymount Business Park, North Derby Street, Belfast, BT15 3HN (NI632933). PropertyPal Mortgages Ltd is an Appointed Representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading name of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority for mortgages, protection insurance and general insurance products. The Financial Conduct Authority does not regulate some forms of Buy to Let.
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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
Last modified: 10/06/2022