How Much Can I Borrow? How Mortgage Affordability Really Works
If you’re starting to think about buying a property, one of your first questions is likely to be: how much can I borrow for a mortgage?
A common way to get a rough idea is to multiply your salary by 4 or 4.5. But lenders don’t decide how much you can borrow from your salary alone. They also look at how you earn your income, your existing financial commitments, your household circumstances and the mortgage you’re applying for.
That’s why two people earning exactly the same amount can be offered very different levels of borrowing.
Why 4 to 4.5 times your salary is only a rough guide
If you earn £40,000, for example, multiplying your income by 4 to 4.5 gives a figure of £160,000 to £180,000. On a joint application, the calculation would usually be based on the income the lender is prepared to take into account from both applicants.
That gives you a useful starting point, but it isn’t a lending rule. Some lenders may allow higher income multiples for eligible applicants, while others may offer less once they have assessed your wider circumstances.
The actual figure will depend on each lender’s criteria and affordability calculations, rather than an income multiple alone.
What do lenders look at when calculating mortgage affordability?
The type of income you receive can make a difference. A basic salary is usually straightforward, but lenders may treat overtime, bonuses, commission, second-job income, benefits or self-employed income differently, depending on their criteria.
For example, some lenders use 100% of overtime, where as others only use 50%. This can make a big difference to the maximum amount you could borrow.
Your existing commitments matter too. Loans, car finance, credit card balances, childcare and maintenance payments can all affect how much a lender is prepared to offer. Lenders also factor in normal household living costs as part of their affordability assessment.
When I’m looking at how much a customer might be able to borrow, I’m looking at the whole picture. Income is clearly important, but so is what’s already committed each month.
That’s why somebody with relatively few commitments may be able to borrow more than somebody earning the same amount who also has car finance, childcare costs and other regular outgoings. A salary multiple on its own can’t show you that difference.
Can your mortgage term affect how much you can borrow?
Yes. Taking a mortgage over a longer term will normally reduce the monthly repayment compared with borrowing the same amount over a shorter period. Because monthly payments form part of the affordability picture, the mortgage term can sometimes affect the amount a lender is prepared to offer.
However, taking a mortgage over a longer term means you will be paying interest for longer, which can increase the total amount you repay over the life of the mortgage. Your age and expected retirement age may also influence the maximum term available, particularly if the mortgage would continue into retirement.
So while changing the term can alter an affordability result, it isn’t simply a case of making the mortgage as long as possible to increase your borrowing. The term still needs to be appropriate for your circumstances and plans.
Does a bigger deposit mean you can borrow more?
Potentially. A larger deposit reduces the amount you need to borrow for the same property and lowers your Loan To Value, or LTV. A lower LTV can give you access to a wider range of mortgage products and, with some lenders, different lending criteria. For example, some lenders may allow higher income multiples at lower LTVs.
That means the size of your deposit can sometimes influence the maximum mortgage available to you.
However, it doesn’t replace the lender’s affordability assessment. Your income, regular commitments, household expenditure, mortgage term and other relevant circumstances still need to support the amount being borrowed.
So, someone with a larger deposit may, in theory, have access to a higher income multiple with a particular lender, but that doesn’t automatically mean they will qualify for it.
It’s useful to think of your deposit and borrowing capacity as two connected parts of your overall property budget: your deposit affects your LTV and the amount you need to borrow, while the lender still needs to establish that the mortgage is affordable based on your individual circumstances.
Why can one lender let you borrow more than another?
This is one of the areas that can be surprising if you’ve only tried one bank’s mortgage calculator.
There isn’t a single mortgage affordability calculation used across the market. Lenders have their own policies covering the types of income they accept, how expenditure is treated, maximum mortgage terms, income multiples and many other factors.
I often see affordability vary between lenders even though nothing about the customer’s circumstances has changed. That doesn’t necessarily mean one lender is more generous than another generally. Sometimes its criteria simply fit that particular customer better.
It’s also why being told how much you can borrow by one lender doesn’t necessarily tell you what may be available elsewhere.
What mortgage can I afford comfortably?
There’s a separate question here which can sometimes get lost when everyone is concentrating on the maximum figure: how much do you actually want to borrow?
When I’m discussing borrowing with a client, I don’t think the only useful question is “What is the maximum a lender will give me?” It’s also worth thinking about what monthly payment feels comfortable alongside everything else you want your income to cover.
You might want to continue saving every month, have money available for holidays or hobbies, or simply prefer some breathing room in your budget. You might know that childcare costs are likely to increase, that you’re considering a change in working hours, or that other expenses are on the horizon. If you’re buying your first home, it’s also worth remembering that home ownership brings costs of its own, including maintenance and repairs.
For some people, borrowing towards the top of what is available will feel comfortable. For others, it won’t. Neither approach is automatically right or wrong.
How useful is a mortgage affordability calculator?
A mortgage affordability calculator can be a useful place to start, particularly when you’re in the early stages and want an idea of what your property budget might look like.
The important thing to remember is that different mortgage lenders can give very different answers. They each have their own affordability calculations and lending criteria, so a simple calculator based on a standard income multiple can only tell you so much.
That’s why our mortgage calculator works a little differently. Enter a few details and it compares them across more than 50 lenders, giving you an indication of the maximum amount you could potentially borrow. There’s no credit check, so using it won’t affect your credit score.
It’s still an indication rather than a mortgage offer. A full assessment may need to consider more detail about your income, commitments and individual circumstances, as well as lender criteria.
But if you want to understand what your borrowing might look like before you start viewing properties, it can give you a useful starting point.
So, how much can you borrow?
There isn’t one figure that can be worked out from your salary alone. How much you may be able to borrow will depend on your wider circumstances and how different lenders assess them.
If you’d like a clearer idea of what that could look like for you, you can book a free Discovery Appointment and I can look at your circumstances and talk you through the options available.
Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.
A fee may be charged for mortgage advice. The exact amount will depend on your circumstances.