Money News Feature

How much can I borrow for a mortgage?

By Martin Fagan

When you apply for a mortgage your earnings, deposit and your credit worthiness are all taken into account

How much you can borrow as a mortgage basically depends on how much you can afford to repay.

When you apply for a mortgage you will be assessed on a number of things so the lender can get a full understanding of your financial circumstances and background.

It is this which will determine how much you will be able to borrow - or to put it another way - how much the lender is willing to lend you.

Factors which will affect how much you can borrow:

1. Earnings - How much you earn will be a key decider as to how much you’ll be able to borrow. Prior to the mortgage squeeze, lenders would a multiple of your income. So for example if you earn £30,000 the lender might have offered you three times this amount - £90,000 - as a mortgage.

   However, in the housing boom leading up to the 2007 crash, as house prices were rising but interest rates were falling, many lenders assessed potential borrowers by how much of their disposable income they could afford to pay a month and worked backwards from there to arrive at a sum it was willing to advance to the borrower.

2. Affordability -After deciding how much it will lend you, the lender takes all your financial commitments into account to establish how much disposable income you have and therefore your ability to make the interest payments every month.

To do this, the lender will consider your total income, as well as any other outstanding loans you might be paying off or ongoing credit card debts and it will also consider other outgoings such as household bills and living expenses.

3. Deposit - The lender will only give you a mortgage if you have a sufficient deposit. A typical deposit now is around 15%. So for example, if the property you wish to buy is £100,000 you will need to have a deposit of £15,000. If you have this deposit then subject to affordability and other matters you will be able to borrow the other £85,000.
4. Credit history - This is important. The lender will do a thorough check of your credit history to see how you cope with repaying loans. They will scour your borrowing history keeping an eye out for things such as late payments, defaults, or County Court Judgments (CCJs).

   This will all have an important impact on the likelihood you are approved for credit as well as how much the lender will be willing to give you.

5. Your property value - the lender is not going to lend you any more than the property is worth, so they will do a valuation before agreeing to a mortgage. Obviously the value of the property and the size of your deposit will both determine how much you will be allowed to borrow.

Tell the truth

So your deposit, credit history, salary and the fewer existing financial commitments you have, will all play a part in determining how much you will be able to borrow for a mortgage.

But above all you must be truthful when the lender asks for this information. Whatever you do, don't be tempted to lie on your application form just to get a bigger loan. If you’re not in a good enough financial position to borrow the mortgage you want, you could well be better off putting a budget in place to bolster your credentials, by paying down any outstanding debts.

To see what’s available in the mortgage market and get an idea of the level of deposit and earnings required compare mortgage deals.

THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.