How Much Can I Borrow for a Mortgage?
, by Matt Stevens
How much you could borrow for a mortgage is dependent on various factors related to your personal and financial situation.
Whether you're a first-time buyer or moving home, we'll walk you through the key details which influence your borrowing potential.
What factors affect how much I can borrow for a mortgage?
Lenders assess several factors to determine your borrowing capacity and affordability:
Income: Your earnings, including wage, bonuses, and tax credits, play an important part. If you're buying with a partner or friend, lenders will consider your combined annual income. You’ll need to provide a P60 or recent payslips as proof.
Employment status: Whether you're salaried or self-employed affects how lenders assess your financial stability. Self-employed applicants are often required to provide two to three years’ worth of tax returns (SA302 forms) and may have to demonstrate future earnings potential. The nature of your industry could also be a factor.
Outgoings and financial commitments: Lenders examine your regular expenses to gauge affordability. This includes everyday spending, childcare costs, and any financial commitments like loans or credit card debt. They’ll also look at how your deposit was accumulated and ensure your debt repayments won’t impact your ability to meet mortgage payments.
Deposit: The size of your mortgage deposit affects both how much you can borrow and the interest rates available to you. A larger deposit reduces lender risk and can secure better mortgage terms.
Credit score: Your credit history provides insight into how well you manage your finances. Lenders check your credit report to assess your reliability in making payments on time and managing debt responsibly. A higher credit score will improve your mortgage options.
If you want to get an idea of your current financial health before you apply for a mortgage, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to see any possible mistakes or fraudulent activity on your profile, so you can quickly deal with such issues. The trial and subscription can be cancelled at any time.
What salary do you need to afford a house?
The salary you need to afford a house depends on the property price and location. House prices vary significantly across the UK, so affordability will differ depending on where you’re looking to buy.
As a general rule, lenders offer between 4 to 5 times your annual salary. As mentioned, if you're purchasing with a partner or another applicant, your combined income will be used to calculate your maximum borrowing amount.
Example:
If you earn £30,000 per year, lenders might offer between £120,000 and £150,000.
If you and your partner both earn £30,000, your combined salary of £60,000 could mean a mortgage offer between £240,000 and £300,000.
How much deposit do I need to get a mortgage?
As a first-time buyer, you’ll need a minimum deposit of 5% of the property’s value. However, a larger deposit reduces the amount you need to borrow, giving you access to better interest rates and therefore lower monthly repayments. Lenders assess this through your loan-to-value (LTV) ratio, which represents the percentage of the property price covered by your mortgage.
For instance, If you’re buying a home for £150,000 with a 10% deposit (£15,000), your LTV would be 90%, meaning you’d need a £135,000 mortgage. A higher deposit lowers your LTV, making you a lower-risk borrower and increasing the number of mortgage deals available to you. While some lenders offer 100% mortgages, these are rare and often come with stricter eligibility requirements.
How much money can I afford to borrow?
When taking out a mortgage, it’s important to borrow an amount you can comfortably afford to repay, ensuring you won’t face financial strain in the future. Remember, your mortgage isn’t the only cost - you’ll also need to budget for additional fees and charges, such as legal fees, stamp duty (if applicable), and ongoing homeownership expenses.
To help you estimate your borrowing power, our mortgage calculator shows how much you can expect to repay each month based on your property value, deposit, and interest rate.
We also offer a range of other calculators to help you plan:
Can I borrow if I have bad credit?
Yes, it’s possible to get a mortgage with bad credit, but your options may be more limited. Specialist lenders offer mortgages tailored to those with a poor credit history, but these are usually assessed on a case-by-case basis rather than being widely advertised.
Your chances of approval will depend on factors such as the severity and age of your credit issues, your current financial stability, and whether you've taken steps to improve your credit score. If you do secure a bad credit mortgage, then be prepared for higher interest rates and a larger deposit requirement to offset the perceived risk.
What mortgages can I get?
There are several types of mortgages, each with different features and benefits. Choosing the right one depends on your financial situation and risk tolerance.
Fixed-Rate Mortgage
A fixed-rate mortgage has an interest rate that stays the same for a set period, typically two to five years, though longer terms of up to ten years or more are available.
Pros: Predictable monthly payments, protection from interest rate increases.
Cons: If interest rates fall, you won’t benefit from lower payments until your fixed term ends.
Variable-Rate Mortgage
A variable-rate mortgage means your monthly repayments can change throughout the loan term, as the interest rate fluctuates based on the Bank of England’s base rate.
Pros: If interest rates drop, your payments could decrease.
Cons: Payments might rise if interest rates increase, making budgeting less predictable.
There are different types of variable-rate mortgages:
Standard variable rate (SVR) mortgage - Each lender sets its own SVR, which can change at their discretion. SVRs are usually 2-5% above the base rate, but they vary significantly between lenders.
Tracker mortgage - Directly follows the Bank of England’s base rate, plus a set percentage. If the base rate rises or falls, so do your repayments.
Discount Mortgage
A discount mortgage offers a reduced interest rate compared to the lender’s standard variable rate (SVR) for a set period.
Pros: Lower initial payments compared to an SVR mortgage.
Cons: Because it’s linked to the lender’s SVR (which they can change at any time), your payments may increase even if the Bank of England’s base rate stays the same.
How can I get a bigger mortgage?
Mortgage calculators provide a rough estimate of what you might be able to borrow, but there are several ways to increase your borrowing potential.
Save for a larger deposit: A bigger deposit reduces the amount you need to borrow and helps you to access better mortgage deals. To save more quickly, you may consider cutting back on non-essential expenses, living in shared accommodation, or moving in with family to reduce costs.
Improve your credit score: Lenders assess your credit history to determine how risky it is to lend to you. Paying bills and existing debts on time, avoiding new debt before applying for a mortgage, and checking your credit report for errors can all help improve your score and make you a more attractive borrower.
Consider a guarantor mortgage: If saving a large deposit isn’t feasible, a guarantor mortgage could be an option. This involves a family member agreeing to cover the mortgage repayments if you’re unable to do so. Having a guarantor reduces the lender’s risk, which could increase the amount they are willing to lend you.
Compare the mortgage market with a broker
Whether you’re a first-time buyer with a limited deposit, have bad credit, or want to maximise your borrowing potential, speaking to a mortgage broker is one of the best steps you can take.
Mortgage brokers have access to the latest deals and can guide you toward the best lenders based on your individual circumstances. Unlike searching alone, brokers can leverage their relationships with lenders, working directly with underwriters to present your case in the best possible light. This improves your chances of securing a competitive mortgage, even if your situation is more complex.
At The Mortgage Genie, we compare mortgage products from a wide network of lenders to find the best deals on the market. Get in touch today by calling 01915809890, and we’ll help you find the right mortgage solution for your needs.
