How Much Can I Borrow Calculator for 2022
The question how much can I borrow is always a worrying one. Especially in today’s climate of increased interest rates and inflation, if you’re looking for a mortgage, how much can you can borrow will depend a lot on your circumstances. In this guide, we’ll walk you through how much you can borrow based on you income, credit score and more!
Why Is Borrowing for a Mortgage Important?
Borrowing money is scary, and when it’s from a bank it’s even scarier since you can get yourself into a lot of trouble if you don’t pay the money back. However, borrowing money is in fact the way the world works and its vital for prosperity. Like business have to borrow to fund their ideas, people can also borrow to fund their home. This type of loan is called a mortgage.
What Is Mortgage Borrowing?
A mortgage is a type of loan provided to people to buy their homes. Since houses and even flats cost a lot more than anyone has in their bank accounts, most people will need a loan from their bank or mortgage lender to be able to buy. A mortgage is a very long term loan, so you’ll make your payments over 25 to even 40 years.
What’s Involved in Mortgage Borrowing?
Borrowing for a mortgage involves three main things: loan-to-value, the interest rate, and the deposit. All of these factors put together give you a good idea of what your mortgage rates might be and how much you can borrow.
- Loan-to-value
The loan-to-value is how much you actually borrow as a percentage of the value of your house. For example, if you’re house is worth £200,000 and you are offered a 90% loan-to-value, you can borrow £180,000. - Interest Rate
The interest rate is how much you are charged for borrowing the money for your home. This is the way your bank or mortgage lender will manage the risk of lending you the money. Usually interest rates are around 3% or more, and you pay this back along with the original loan over time. - Deposit
Banks and mortgage lenders very rarely lend you the full amount (100% loan-to-value). Instead, they will lend you the majority of the money, but you’ll have to front the rest of the cost yourself, known as the mortgage deposit. Your deposit can be as low as 5% for first-time home buyers or as high as 40% for buy-to-let mortgages.
Mortgages are secured loans, meaning that you put up the value of your home against the money you’ve borrowed. This gives mortgage lenders some security since they will repossess your home if you fail to make payments (also called a mortgage delinquency). Make sure you factor how much you can borrow with your ability to pay in the future!
Read Our Complete Mortgage Guide!
What Affects How Much I Can Borrow?
There are a lot of factors that affect how much you can borrow for your mortgage, but primarily the main thing mortgage lenders will look at is your salary. Mortgage lenders need to be sure you’re stable enough to make the mortgage repayments for the full term of the loan, so expect a grilling of your finances when you apply.
How Much Can I Borrow on My Salary?
Your salary will be the biggest determinant of how much you can borrow for your mortgage. How much you earn each month will show lenders how much you’ll be able to pay back over the course of the loan. The type of job you have will also influence your lender’s decision.
How much you can borrow will likely depend on:
- Monthly Salary
If you earn a certain amount every month, your lender might require that your mortgage repayments are below a certain percentage of your salary. If over half of your salary will be going on the mortgage, they will have doubts whether you can afford everything else required for a home. Remember to use your salary to determine your budget when looking for a property. - Job Stability
Lenders will want you to have job stability in order for you to start borrowing so they can be confident you’ll be consistently making repayments. If you are fully employed on a long term contract with a fixed salary, you might be able to borrow more. - Job Type
Mortgage lenders tend to prefer you to be employed on a full-time contract in order to approve a mortgage. If you are on a temporary contract or working part-time, it’s unlikely you’ll be approved since the source of income might not be enough to afford it.
Can I Borrow More with More People?
You might be able to borrow more if you get a joint mortgage to pay for a house with more people. A joint ownership is known as a tenants in common arrangement, and you would have to provide proof of income for each of the borrowers in the agreement. This is a great way of borrowing even more money to finance your house.
How Much Can I Borrow Self-Employed? Being self-employed shouldn’t affect your mortgage application. While it is true that if your income fluctuates a lot you can be penalised for that, but if you can have a good steady income and a business that has good protections, you should be fine for a mortgage.
Why Is My Credit Score Important?
Aside from your salary, in the current housing market, your credit score is very important when it comes knowing how much you can borrow for your mortgage. Your credit history will prove to your mortgage lender how consistently you’ve paid your bills and other expenses so you don’t get into arrears. For mortgage lenders, the better the credit score, the more you can borrow.
- How To Improve Your Credit Score
- Pay bills on time every month
- Pay off credit card debt consistently
- Keep under your credit card limit
- Check errors on your credit file
What About My Monthly Expenses?
Your monthly outgoings are likely to affect how much you can borrow, since the proportion of your income that is reserved for bills will affect your ability to pay back the mortgage repayments. As well as your mortgage, you’ll need to be able to afford your utilities such as:
- Gas and electricity
- Water supply
- Broadband
- Other subscriptions
When you go to apply, make sure you’ve paid down any credit card debt or any other debt you might have accumulated.
Does My Deposit Affect How Much I Can Borrow?
The deposit you put down and where it comes from can also affect how much you can borrow. Deposits are good proof that you’re able to save up and exercise financial discipline, so a mortgage lender will definitely take that into consideration when working out how much you can borrow.
- Deposit Amount
If you put down a larger deposit, you might be able to borrow more than just your home’s value. You might even get enough to cover some of the costs for repair or renovation if you need them. With a smaller deposit, you might only just be able borrow what you need to buy your house. - Deposit Source
Where your deposit comes from is also important for lenders. If you’ve saved up the deposit yourself, you might get better deals than if you were gifted the deposit by someone else. Lenders can be a bit funny about deposits gifted to you so you might need the gifter to sign a gifted deposit letter.
How Much Can I Borrow Calculator
In order to get an idea of how much you can borrow, use our calculator to work out your likely loan from your monthly income.
Check Out Our Mortgage Calculator!
How Much Can I Borrow as a First-Time Buyer?
If you’re a first-time buyer, you’re likely to benefit from a number of different first-time buyer schemes that will make it easier for you to get a mortgage. Typically, first-time buyers pay a much lower deposit and discounts off the value of their home.
What First-Time Buyer Schemes Are There?
First-time buyers schemes depend a lot on where you live and what’s currently on offer at the moment. Here’s a list of the most common first-time buyers schemes that are available:
- Help To Buy Schemes
- First Homes Scheme
- 95% Mortgage Guarantee Scheme
- Stamp Duty Relief
- Right to Buy
If you get a discount on your first property, this will indirectly increase your borrowing potential since you’ll borrow on the discounted rate rather than the full rate.
Read More in Our First-Time Buyer Guide!
How Much Can I Borrow To Remortgage?
Since the Mortgage Market Review in 2014, remortgaging is a lot tougher than it used to be. People looking to remortgage their home now have to apply for a brand new mortgage, rather than just switching it over. In this case, how much you can borrow to remortgage your home will come under the same scrutiny.
What Is Remortgaging?
Remortgaging is where you renegotiate your mortgage with your current lender or transfer it to another one. In the case of bringing your mortgage to another lender, you will be technically taking out a brand new mortgage on your property and it involves just as much assessment as taking out your first mortgage.
How Much Can I Borrow Remortgaging?
The amount you can borrow remortgaging will usually be the outstanding balance you owe to your current lender. However, it could result in less if your home has depreciated in value since you took out the mortgage are you are in negative equity. Lenders will also look at other factors to assess your remortgage application, such as:
- Income
- Day-to-day expenses
- Credit rating
- Current mortgage rates
