How much money can you borrow on a mortgage?
Mortgage Criteria
Mortgage companies have many different rules, or criteria, that they apply to work out how much they are willing to lend to you.
One of the biggest is your income multiple. This is the number they multiple your income by to reach a maximum total that they will loan.
Income Multiple
Many factors affect what that multiple will be.
As a rule-of-thumb, take your gross income and multiple it by four-and-a-half times to get to a possible maximum amount that can be lent.
To see how much you could borrow click here.
Factors that reduce your income multiple
Then lenders start to reduce the multiple depending on things like:
- The size of the deposit you have, the greater the deposit the less risk you are to a lender and the more they are willing to lend. The minimum deposit is 10% of the house price but the nearer you get to a 40% deposit the more a lender will offer.
- Your credit score – so a low credit score, say with missed payments or defaults on it will reduce your income multiples.
- How much you earn – if you earn below 15K the multiple may reduce to just 3 times and if you are a high earner, earning over 50K then the multiple may increase up to 5.5 times
Other factors that reduce the lender’s view of your affordability are
The number of monthly credit commitments you have.
So, if you have a personal loan costing you £100 a month, they will multiply that by 12 and deduct £1,200 from your overall gross income
Then the number of children you have also reduces your affordability
Fixed-rate period
Finally, some lenders will lend you a higher loan amount if you choose a 5-year fixed-rate product over a 2-year fixed-rate product. That means for 5 years the interest rate and your monthly payments will stay exactly the same, therefore the lender is willing to lend that much more to you as you are less risk to them or vulnerable to any rate increases.
As you can see there are many variables involved that a simple search for the lowest rate on a mortgage comparison site will not reveal to you.
So for a more precise illustration of what you can borrow, get in touch today.
