How much can I borrow for a mortgage?

How Much Can I Borrow for a Mortgage?

One of the first questions people ask when they are thinking about buying a home is: “How much can I borrow for a mortgage?”

The answer isn't simply based on your salary. Mortgage lenders look at your income, regular outgoings, existing debts, deposit, employment circumstances and other factors when deciding how much they may be prepared to lend.

If you're buying your first home, moving house or remortgaging, understanding your potential borrowing amount before you start looking at properties can help you set a realistic budget.

How do mortgage lenders work out how much you can borrow?

Mortgage lenders look at your overall financial circumstances rather than just your annual income.

They will usually consider things such as:

Your salary or other income

Your partner's income, if applying jointly

Your regular household expenses

Existing loans and credit commitments

Credit cards and other financial commitments

Childcare and other regular costs

Your deposit

Your employment and income history

The term of the mortgage

Your credit history

The type of income you receive

Each lender has its own affordability criteria, so two lenders may assess the same application differently.

This is one reason why the amount you could potentially borrow isn't always the same as a simple multiple of your salary.

How many times my salary can I borrow?

You may have heard that you can borrow around four or five times your annual income.

While income multiples can be useful as a very rough starting point, they don't tell the whole story.

For example, someone earning £40,000 with very few financial commitments could have a different borrowing capacity from someone earning the same amount but with significant monthly commitments.

Some lenders may also have different criteria depending on your circumstances and the type of income you receive.

The important thing is not simply finding the lender willing to offer the biggest mortgage, but understanding what mortgage is affordable and appropriate for you.

Does my deposit affect how much I can borrow?

Yes, your deposit can have an important effect on your mortgage.

For example, if you wanted to buy a £250,000 property and had a £25,000 deposit, you would need a £225,000 mortgage.

That's a 90% loan-to-value (LTV) mortgage.

A larger deposit can potentially give you access to mortgages with lower LTVs and, depending on the lender and circumstances, potentially more competitive interest rates.

However, you shouldn't necessarily use every penny of your savings as a deposit.

You'll also need to think about other costs associated with buying a property, such as legal fees, surveys, moving costs and any applicable taxes.

Does my credit history affect how much I can borrow?

It can.

Lenders will consider your credit history as part of their assessment of your mortgage application.

Things such as missed payments, defaults, County Court Judgments (CCJs) or other credit issues may affect which mortgage options are available to you.

However, having something negative on your credit history doesn't automatically mean you can't get a mortgage.

The circumstances surrounding the issue, how recent it was and your wider financial position can all be important.

If you're concerned about your credit history, it's often better to discuss it with a mortgage adviser before making an application rather than applying for several mortgages yourself.

Can I borrow more if I apply with my partner?

Potentially.

When two people apply for a mortgage together, the lender will normally consider both applicants' income and financial commitments.

This can increase the amount that may be available compared with applying on your own.

However, the lender will also take both applicants' financial commitments into account.

For example, existing loans, credit commitments or childcare costs could affect affordability.

Does overtime or bonus income count towards a mortgage?

It can, but lenders don't all treat additional income in the same way.

Depending on the lender and your circumstances, income such as:

Overtime

Bonuses

Commission

Shift allowances

Car allowances

Contract income

may be considered when assessing affordability.

The amount that can be used and the evidence required can vary between lenders.

If a significant part of your income comes from overtime, bonuses or commission, it's worth understanding how lenders may assess it before applying.

Can self-employed people get a mortgage?

Yes.

Being self-employed doesn't automatically prevent you from getting a mortgage.

However, lenders can assess self-employed income differently from employed income.

They may look at things such as:

Your trading history

Company accounts

Tax calculations

Tax year overviews

Salary and dividends

The length of time you've been self-employed

The criteria can vary significantly between lenders.

If you're self-employed, speaking to a mortgage broker before you start looking at properties can help you understand which lenders may be appropriate for your circumstances.

Can contractors get a mortgage?

Yes, contractors can potentially get mortgages, although the way your income is assessed can vary depending on your contract and the lender.

Factors can include:

Your daily or hourly rate

Contract length

Contract history

Industry

Whether you work through an umbrella company or limited company

Your previous employment history

I've helped clients with less straightforward income circumstances, including contract workers, navigate the mortgage process.

If you're a contractor and you're unsure how your income may be assessed, it's worth discussing your circumstances before making an application.

Does the length of my mortgage affect how much I can borrow?

It can.

A longer mortgage term can reduce the monthly mortgage payment because the borrowing is spread over a longer period.

This can potentially affect affordability calculations.

However, extending a mortgage term generally means paying interest for longer and potentially paying more interest overall.

The right mortgage term therefore isn't simply about maximising how much you can borrow. It should also fit your wider financial circumstances and long-term plans.

Should I borrow the maximum amount available?

Not necessarily.

Just because a lender is prepared to lend you a certain amount doesn't mean you have to borrow all of it.

It's important to consider what your monthly mortgage payment would look like alongside your normal household expenses and future plans.

For example, you may want to allow for:

Energy bills

Council tax

Insurance

Food and transport

Childcare

Holidays

Savings

Home maintenance

Unexpected expenses

A mortgage should fit comfortably within your overall budget rather than simply being based on the maximum a lender is prepared to offer.

How can I find out how much I could borrow?

The most useful starting point is to look at your complete financial position rather than relying solely on a generic online mortgage calculator.

A mortgage adviser can look at your income, expenditure, deposit, credit commitments and circumstances and help you understand the types of mortgage and borrowing levels that may be available.

It's also worth doing this before making an offer on a property.

Knowing your approximate budget in advance can help you search for properties realistically and avoid wasting time looking at homes outside your likely price range.

How much could I borrow for a mortgage in Bury or Ramsbottom?

The amount you could borrow isn't determined by the area you live in.

A lender will primarily look at your personal financial circumstances, the property you're buying and the mortgage you're applying for.

However, if you're looking to buy in Bury, Ramsbottom or the surrounding areas of Greater Manchester, getting your mortgage position understood before you start viewing properties can make the buying process much easier.

Speak to a mortgage broker in Bury

If you're considering buying a home and want to understand how much you could potentially borrow, I'd be happy to talk through your circumstances.

I help first-time buyers, homeowners, landlords and home movers across Bury, Ramsbottom and Greater Manchester, with appointments available either face-to-face or by video call.

You don't need to have found a property before speaking to a mortgage broker.

In fact, getting advice early can help you understand your budget before you start looking.

Get in touch with Ben Garratt Mortgages & Protection to discuss your mortgage options.

Frequently Asked Questions

How much can I borrow for a mortgage on a £40,000 salary?

There isn't a single answer because lenders assess affordability differently. Your borrowing could depend on your income, monthly commitments, deposit, credit history and other circumstances.

Can I borrow more than four times my salary?

Potentially. Some lenders may be able to offer more than four times your income depending on your circumstances and their affordability criteria. However, the maximum available isn't necessarily the amount you should borrow.

Does having a bigger deposit increase how much I can borrow?

A larger deposit reduces the amount you need to borrow and can potentially give you access to different loan-to-value bands and mortgage products. Your overall affordability will still be assessed by the lender.

Can I get a mortgage if I'm self-employed?

Yes. Self-employed applicants can obtain mortgages, although lenders may assess income differently depending on your business structure, trading history and financial records.

Should I speak to a mortgage broker before finding a house?

It's often sensible to speak to a mortgage broker before making offers. Understanding your potential borrowing and budget can help you search for properties realistically and identify potential issues before you commit to a purchase.

Is the amount a lender will lend me the amount I should borrow?

No. A lender's maximum borrowing figure should not automatically be treated as your personal budget. You should consider your monthly payments and other household expenses to make sure the mortgage remains affordable for you.

Your home may be repossessed if you do not keep up repayments on your mortgage.