One of the main conversations we have with clients is on the subject of what is the maximum they are able to borrow or are they able to get the amount they wish to borrow. Of course, this is one of the key elements of being able to proceed with your plans or know what your plans may need to be, such as what price range you can consider for your purchase based on the results.

What mortgage can I afford?

Knowing what you can borrow is one thing but knowing what you can afford can be a completely different thing altogether. Everyone’s circumstances are different and as such we will all have a different view on what we feel we can afford in regard to our monthly mortgage payment.  Affordability opinions can also differ between what you feel you can afford to what a lender assesses as your affordability. Whilst a lender will go through much of your income and expenditure or in some cases use the information provided by the Office of National Statistics to get a general view, they will not know your exact spending habits in the same way that you do. When a lender therefore calculates what they feel you can afford there are certain things they take into account. Some of the main ones being:

Income – this can be from a variety of sources such as a salary, self-employed income, benefits, maintenance and for some even investment income such as rents received.

Number of dependants – this does not necessarily solely relate to children but can also be an adult that is dependent on your income. Certain assumptions or figures for the Office of National Statistics are used to calculate how much of a financial commitment a dependant is.

Credit commitments – this is how much you pay for your contractual credit commitments such as loan payments, lease agreements, HP agreements and also not to forget any buy now pay later finance. Your credit card balances will also be taken into consideration with most lenders taking the monthly commitment as between 3% – 5% of the balance outstanding at the time of application.  This is regardless of your monthly payments, which may be different. Other payments such as any agreed maintenance will also be taken into account.

Travel – some lenders will predetermine a certain amount for expected travel costs however some will ask you what you actually spend or will likely spend after your move. It may also be that you pay for an annual travel or rail pass.

Council tax – again, some lenders will build this into their automatic assessment however some will ask what this is or what it will be on a monthly basis following a house purchase.

Other mortgages – the mortgage you are enquiring about may not be your only one following completion and as such lenders will want to know about any other mortgages you will have remaining and where applicable, what rents you receive.

Your age – this will dictate what term you are able to take your mortgage over. As the term of a repayment mortgage can have an impact on the amount of the monthly payment i.e., the longer the term the lower the payment, your age will play its part.

Property value and loan amount – by having an indication of this the lender can assess what the expected loan to value (LTV) will be. The lower this is the lesser risk you propose to the lender and in turn the more they may be prepared to lend to you.

How much income do I need for a mortgage?

To be able to get a mortgage for your own residential use, lenders rarely set a minimum personal income. Do bear in mind however that a lender has to be happy that you can afford to pay your day-to-day bills before they can make any allowances for what may be left to cover a mortgage payment.  Therefore, whilst there may not be a minimum you may find that a lender may not consider you can afford a mortgage of any amount even if you are in receipt of an income.

If looking at buy to let mortgages, many lenders now impose minimum personal incomes. This is usually £25,000 per annum. However, there are still some lenders that do not impose any minimum at all and purely assess on the rentable value of the property in question.

What mortgage can I get with my salary?

When deciding what mortgage you can get based on your income, a lender will assess your affordability. However, also built into their calculations will be a maximum income multiple that will override this affordability where necessary. The income multiple used will vary from one lender to the next and can also take other factors into consideration such as:

Type of rate – if taking a 5 year fixed rate or more, some lenders may increase the income multiple and permit you to borrow more. This is due to the lender having the security that the interest rate you are being charged will not change over this period and in turn nor your monthly payment. The thought is that in 5 years’ time your financial situation will have changed for the better that can accommodate any possible rises in rates should this apply.

Loan to value – the lower your loan to value the better risk you represent to the lender. In turn they may opt to give a higher income multiple. As a reverse of this, should the LTV be higher such as 95%  they may decrease the usual income multiple due to the perceived higher risk.

Level of income – it is shown that those on higher incomes have a greater disposable income after they have accounted for their bills. As such some lenders will increase their income multiples for those earning above a certain yearly income such as £100,000 per annum.

Type of profession – some lenders may give a higher income multiple to those in certain professions.  Where offered, the type of occupation can vary but it’s typically for those such as doctors, accountants, solicitors, teachers, dentists, vets, barristers and for certain engineers.

Typical income multiples are between 4.5 – 5x income however a few schemes will permit even more with those that will go to 7x income. As perhaps expected, those that offer the higher income multiples will have strict criteria attached so these will not be available to the masses. Being able to borrow that little bit more from one lender to another could make all the difference to your plans.  As a quick reference the following shows the difference between 4.5x and 5x income with no additional commitments:

Income                                                                 4.5x income        5x income           Difference

A mortgage on £20K salary           =                             £90,000                 £100,000              £10,000

A mortgage on £30K salary           =                             £135,000              £150,000              £15,000

A mortgage on £40K salary           =                             £180,000              £200,000              £20,000

A mortgage on £50K salary           =                             £225,000              £250,000              £25,000

A mortgage on £60K salary           =                             £270,000              £300,000              £30,000

A mortgage on £100K salary        =                             £450,000              £500,000              £50,000

The above still shows things in a very simplistic way and to get an accurate figure based on your individual circumstances we would strongly suggest that you use an actual mortgage affordability calculator. Or better still speak to one of our advisers who will have access to each individual lender’s calculator to ensure you get the most accurate figure possible.

Try the calculator below.