How Much Can I Afford To Borrow On A Mortgage?
Knowing how much mortgage you can get before beginning your search for a home is very important. However, the calculation is only sometimes straightforward today. When considering your application, mortgage brokers use a wide range of other considerations with the conventional “income multiple” method. It all comes down to ensuring the final mortgage payments are manageable for both parties.
How Do Mortgage Brokers Calculate the Maximum Amount You Can Borrow?
Mortgage brokers usually use the calculator to give you an estimate of how much you could borrow as per your gross annual wage. That applies whether you’re remortgaging a home you own or taking out a mortgage to acquire one. You can generally borrow between 4.5 and 4.49 times your joint income if you’re taking out a mortgage with another person (often a partner, but it might also be a family member or acquaintance).
In addition to your income, lenders also consider your spending and outgoings.
The loan-to-value (LTV) ratio between the amount you intend to borrow and the value of the property being funded is another factor taken into account by lenders. Therefore, your deposit will significantly impact how much you can borrow.
Also Read: 5 Advantages of Using a Professional Mortgage Broker
What to Expect From a Cost Benefit Evaluation:
The mortgage lender wants to ensure you can afford to borrow a significant amount of money and make the required repayments before approving your application. It requires an in-depth knowledge of your financial condition, which requires keeping track of your income and outgoing expenses.
#1 – Income:
Along with proof of employment, you must provide three months’ payslips as evidence of your income. You will require the financial statements from the past two years if you are self-employed. Two years’ worth of tax returns might be sufficient in their absence. Other sources of income, such as yearly bonuses, could be considered by the lender, albeit only partially. Each lender might have a different way of calculating the Max loan amount they can lend.
#2 – Outgoings:
After that, the lender will consider your typical monthly expenses. The examination of monthly spending has gotten much stricter since significant regulatory changes were implemented back in 2014 under the Mortgage Market Review, and in some situations, may even include a telephone interview.
What is Stress Testing?
The lender will conduct a stress test after determining how much you could afford to borrow to give it more attention. Stress testing aims to decide whether or not you could still make payments under certain conditions, such as if interest rates rise. Although putting yourself through such financial tests may seem daunting, they will also give you peace of mind that you can comfortably make your mortgage instalments if the worst happens.
What About Your Deposit?
The deposit you can put down about the home’s value may affect your ability to borrow money. It is called loan-to-value, or LTV, in terms of lenders. A percentage represents your LTV.
Your LTV, for example, would be 75% if you were borrowing £150,000 against a £200,000 house.
The lower the LTV, the lesser the risk you represent to the lender as a borrower and the more likely it is that it will get its money back if it has seized and sold the property due to your default on the loan.
Conversely, the higher the LTV, the more difficult it may be to get the required loan. You’ll also have to cope with higher interest rates and additional fees on a mortgage agreement. You can still get a mortgage because there are hundreds of products available.
Also Read: Reasons You Should Hire a Mortgage Advisor
What Kind Of Deposit Do I Require?
The largest mortgages offered at 95% LTV, which requires a 5% deposit. The good news is that these transactions have become increasingly widespread since the government-backed Mortgage Guarantee Scheme introduced in April 2021. It developed to convince lenders to essentially “loosen the purse strings” and assist those looking to purchase a home without a sizable down payment.
Two, three, and five-year fixed rates with the exceptional tracker, a variable agreement that mirrors the Bank of England base rate, are also available from lenders offering mortgages under the programme.
Rates are higher than you could get with a more significant deposit payment. Remember to account for extra costs like valuation and arranging fees as part of your mortgage.
Conclusion:
The amount of money you can borrow for a mortgage in the UK will depend on several factors, including your income, outgoings, credit history, and the property value you want to buy.
A mortgage broker can help you to find the best mortgage for your needs and to get the best possible interest rate. They can also help you understand the different types of mortgages available and choose the right one for your needs.
If you are considering buying a home in the UK, it is a good idea to speak to a mortgage broker first. Mountview Financial Solutions can help you to find the best mortgage for your needs and to get the best possible interest rate.
