One of the first questions when buying a home is:
How much can I borrow?
There is no single answer.
Mortgage lenders look at your income. However, they also look at your spending, debts and other commitments.
Therefore, two people with the same income may be offered very different mortgage amounts.
Understanding how lenders make this decision can help you set a realistic budget.
What Decides How Much You Can Borrow?
A mortgage lender wants to know whether you can afford the mortgage.
It will usually consider several things.
These include your:
- income
- regular spending
- loans and credit cards
- deposit
- credit history
- number of dependants
- mortgage term
- age
- employment
- other financial commitments
The lender will then carry out an affordability assessment.
This helps it decide how much it may be willing to lend.
Is Mortgage Borrowing Based on Your Salary?
Your income is an important part of the calculation.
However, lenders do not simply look at your salary and offer everyone the same multiple.
For example, two people could both earn:
£40,000 a year
One has no debts and low monthly costs.
The other has loans, credit card balances and high regular spending.
Their mortgage options could be very different.
Therefore, income is only part of the picture.
What Is an Income Multiple?
You may hear mortgage borrowing described using an income multiple.
For example, someone earning £40,000 might estimate their borrowing using:
£40,000 × 4 = £160,000
or:
£40,000 × 4.5 = £180,000
This can provide a rough starting point.
However, it is not a guarantee of how much a lender will offer.
Some borrowers may qualify for more. Others may be offered less.
The lender’s own affordability checks will decide.
What About a Joint Mortgage?
If two people apply together, the lender can usually consider both incomes.
For example:
Applicant 1 income: £35,000
Applicant 2 income: £25,000
Combined income: £60,000
The lender can use the combined income when looking at affordability.
However, it will also consider the financial commitments of both applicants.
Therefore, a joint application does not simply mean adding two maximum mortgage amounts together.
Which Types of Income Can Be Used?
A salary from employment is not the only income a lender may consider.
Depending on the lender, it may also consider income such as:
- overtime
- bonuses
- commission
- pension income
- benefits
- investment income
- rental income
- self-employed earnings
However, lenders have different rules.
For example, one lender may use all of your regular overtime. Another may only use part of it.
Therefore, the income accepted for a mortgage can vary between lenders.
What If Your Income Changes Each Month?
Variable income does not automatically stop you from getting a mortgage.
However, the lender may want to see evidence that the income is regular.
For example, your earnings may include overtime or commission.
The lender could look at your income over several months.
It may then use an average rather than your highest month.
This helps the lender avoid basing the mortgage on unusually high earnings.
What If You Are Self-Employed?
Self-employed people can get mortgages too.
However, proving income can be different.
The lender may want to see information such as your:
- accounts
- tax calculations
- tax year overviews
- business records
It may also look at your income over more than one year.
The exact requirements vary between lenders.
Therefore, being self-employed does not mean you cannot get a mortgage. It simply means your income may be assessed differently.
What Is an Affordability Assessment?
An affordability assessment looks at whether the mortgage payments are manageable.
The lender considers the money coming into your household.
It then looks at your financial commitments.
These could include:
- loan payments
- credit cards
- childcare
- maintenance payments
- household costs
- other mortgages
- regular financial commitments
The lender then decides how much mortgage payment it believes you can afford.
Why Does Spending Matter?
Your income does not tell the lender how much money you have available each month.
For example, imagine two households earn £60,000 a year.
One has very few debts.
The other has:
Car finance: £400 per month
Personal loan: £300 per month
Other regular credit payments: £200 per month
That is £900 each month already committed to debt payments.
Therefore, the second household may be able to borrow less.
Do Credit Cards Affect Mortgage Borrowing?
They can.
A lender may consider your:
- outstanding balances
- monthly payments
- credit limits
- use of credit
A large credit card balance can reduce the amount available for mortgage payments.
Therefore, it may affect how much you can borrow.
However, the effect varies between lenders.
Do Personal Loans Affect Mortgage Borrowing?
Yes, they can.
Suppose you pay:
£350 per month
towards a personal loan.
That payment reduces the money available for your mortgage.
Therefore, the lender may offer you a smaller mortgage.
The remaining term of the loan can also matter.
Does Car Finance Affect a Mortgage?
It can.
Car finance is a regular financial commitment.
Therefore, lenders may include it when checking affordability.
This could include arrangements such as:
- Personal Contract Purchase
- Hire Purchase
- personal loans used for a vehicle
A large monthly car payment can reduce mortgage affordability.
Should You Pay Off Debt Before Applying?
Sometimes this can help.
Reducing debt may lower your monthly commitments.
It may also improve your overall financial position.
However, using all your savings to clear debts could leave you with a smaller deposit.
Therefore, it is worth looking at both sides.
For example, you may need to decide whether money is better used to:
reduce debt
or
increase your deposit
The answer depends on your circumstances.
Does Your Deposit Affect How Much You Can Borrow?
Your deposit affects the size of mortgage you need.
For example:
Property price: £250,000
Deposit: £25,000
Mortgage needed: £225,000
If your deposit increased to £50,000:
Property price: £250,000
Deposit: £50,000
Mortgage needed: £200,000
Therefore, a larger deposit reduces the amount you need to borrow.
It can also lower your Loan-to-Value (LTV).
Does a Bigger Deposit Increase Your Maximum Mortgage?
Not necessarily.
Your deposit and borrowing limit are related, but they are different.
Suppose a lender decides that you can afford a maximum mortgage of:
£180,000
Having another £20,000 in savings does not automatically mean the lender will increase the mortgage to £200,000.
Instead, the extra money may allow you to buy a more expensive property without increasing the mortgage.
Therefore, think about:
How much you can borrow
and
How much deposit you have
as two separate parts of your buying budget.
How Do You Work Out Your Property Budget?
A simple starting point is:
Mortgage available + Deposit = Property budget
For example:
Mortgage: £180,000
Deposit: £30,000
This gives:
£210,000
However, you should not assume the full £30,000 can go towards the deposit.
You may also need money for fees and other buying costs.
Don’t Forget Buying Costs
Buying a home can involve more than the deposit.
You may also need money for:
- legal costs
- property taxes
- mortgage fees
- surveys
- moving costs
- insurance
- repairs
Therefore, keep these costs separate when working out your budget.
Does Your Credit History Affect How Much You Can Borrow?
It can.
Mortgage lenders look at your credit history when deciding whether to lend.
They may consider how you have managed borrowing in the past.
For example, they may see:
- missed payments
- credit accounts
- outstanding debts
- defaults
- other credit information
A poor credit history does not always mean you cannot get a mortgage.
However, it may reduce the number of lenders or deals available.
Does Your Credit Score Decide Your Mortgage?
Not by itself.
There is no single credit score used by every UK mortgage lender.
Credit reference agencies may show you a score. However, lenders use their own systems and rules.
Therefore, a high score on an app does not guarantee that a mortgage will be approved.
Your wider financial position also matters.
Does Your Age Affect How Much You Can Borrow?
It can.
Your age may affect the mortgage term available to you.
For example, an older borrower may have a mortgage that continues into retirement.
The lender may then want to know how the mortgage will remain affordable.
It could consider future income such as pensions.
Therefore, age itself is not the only issue.
The lender is also interested in how the mortgage will be repaid throughout its term.
Does the Mortgage Term Affect Affordability?
Yes.
A longer mortgage term usually reduces the required monthly payment on a repayment mortgage.
For example, the monthly payment on a 35-year mortgage will normally be lower than the payment on the same mortgage over 20 years.
This can help with monthly affordability.
However, there is a trade-off.
You are borrowing the money for longer.
Therefore, you may pay much more interest overall.
Can You Simply Choose a Very Long Mortgage?
Not always.
Lenders can set maximum mortgage terms.
They may also consider your age at the end of the mortgage.
Therefore, a very long term may not be available to everyone.
Also, lower monthly payments should not be confused with lower total costs.
What If Interest Rates Rise?
Mortgage lenders need to consider whether your mortgage is affordable.
However, you should also carry out your own checks.
For example, ask yourself:
Could I still afford the mortgage if my payments increased?
This is especially important if you choose a variable rate.
It also matters when a fixed-rate deal ends.
Your next mortgage rate could be higher.
Maximum Borrowing Is Not the Same as Comfortable Borrowing
This is an important difference.
A lender may be willing to offer you:
£250,000
However, that does not mean you have to borrow £250,000.
You may decide that:
£200,000
gives you more comfortable monthly payments.
This could leave more money for:
- household bills
- savings
- holidays
- emergencies
- home repairs
- other goals
Therefore, the maximum available mortgage is not automatically the right mortgage amount.
How Much Would the Monthly Payment Be?
The amount borrowed is only one part of the question.
You also need to consider the monthly payment.
For example, payments are affected by:
Mortgage amount
Interest rate
Mortgage term
Repayment method
Therefore, two mortgages for the same amount can have very different monthly payments.
What Is a Mortgage in Principle?
A Mortgage in Principle can give you an idea of how much a lender may be prepared to lend.
It may also be called an:
Agreement in Principle
or
Decision in Principle
This can be useful when you start looking for a property.
However, it is not a final mortgage offer.
Is a Mortgage in Principle Guaranteed?
No.
The lender will still need to assess the full mortgage application.
It may need to check:
- your income
- your spending
- your credit history
- the property
- your deposit
- supporting documents
Therefore, the final mortgage amount can be different.
Does the Property Affect How Much You Can Borrow?
Yes.
You may be able to afford the mortgage personally, but the property must also be acceptable to the lender.
For example, the lender will consider the property’s value.
It may also have rules about certain types of property.
Therefore, mortgage approval has two sides:
Can you afford the mortgage?
and
Is the property suitable for the mortgage?
Both need to work.
What If the Property Is Valued Lower?
Suppose you agree to buy a home for:
£250,000
However, the lender values it at:
£235,000
This may affect how much it is prepared to lend.
As a result, you might need a larger deposit.
Alternatively, you may need to agree a lower purchase price.
Therefore, the amount you can afford personally does not guarantee the lender will provide that amount on a particular property.
Can First-Time Buyers Borrow More?
Being a first-time buyer does not automatically mean you can borrow more.
However, some lenders offer products aimed at first-time buyers.
There may also be mortgages designed for people with smaller deposits.
Your borrowing amount will still depend on the lender’s affordability rules.
What About Buy-to-Let Mortgages?
Buy-to-let mortgages are assessed differently.
The lender may consider your personal circumstances. However, the expected rent from the property is also important.
It may check whether the rental income is high enough compared with the mortgage interest.
Therefore, a normal residential borrowing estimate should not be used for buy-to-let.
What About Second Home Mortgages?
If you already own a home, the lender will consider your existing commitments.
For example, you may already have a mortgage.
The lender needs to know whether you can afford both properties.
Therefore, your existing mortgage can affect how much you can borrow for a second home.
Why Do Different Lenders Offer Different Amounts?
Mortgage lenders do not all use the same affordability rules.
One lender may offer you £180,000.
Another may offer £200,000.
A third may offer less.
This does not necessarily mean one lender has made a mistake.
They may simply assess your income and spending differently.
Therefore, mortgage affordability can vary between lenders.
A Simple Borrowing Example
Suppose you earn:
£40,000 a year
You estimate borrowing using 4.5 times your income:
£40,000 × 4.5 = £180,000
You also have:
£25,000 deposit
This could suggest a property budget of around:
£205,000
However, this is only a rough estimate.
The lender still needs to check your debts, spending, credit history and other details.
You also need to keep money aside for buying costs.
Therefore, £205,000 should not be treated as a guaranteed budget.
Work Out What You Can Comfortably Afford
Before looking at properties, it can help to create your own monthly budget.
Start with your income.
Then allow for:
Mortgage payment
Council Tax
Energy
Water
Insurance
Food
Transport
Loans and credit
Home maintenance
Savings
Other regular spending
This gives you a better idea of what the mortgage would feel like each month.
Leave Room for Unexpected Costs
Homeownership brings costs that renters or first-time buyers may not expect.
For example, you could suddenly need to repair:
- a boiler
- a roof
- plumbing
- electrical systems
- appliances
Therefore, avoid planning your finances so tightly that there is no room for unexpected costs.
Before Asking How Much You Can Borrow
Gather some basic figures first:
1. Your annual income
2. Any additional regular income
3. Your monthly debt payments
4. Your regular financial commitments
5. Your deposit
6. Your credit balances
7. Your preferred mortgage term
8. Your expected buying costs
This will give you a clearer starting point.
The Key Point
There is no simple formula that tells everyone how much they can borrow.
Your income is important, but it is only part of the calculation.
Lenders also consider your spending, debts, deposit, credit history and other commitments.
Income multiples can provide a rough estimate. However, they should not be treated as a mortgage offer.
Most importantly, there are really two questions:
How much will a lender allow me to borrow?
and
How much can I comfortably afford to borrow?
The second question can be even more important.
Buying below your maximum borrowing limit may give you more room for savings, repairs and changes in your circumstances.
The largest mortgage available is not always the mortgage that is right for you.