How Much Can I Borrow for a Mortgage?

Knowing how much you can borrow for a mortgage is the first step when planning to buy a property. It can help you set a realistic property budget and explore your mortgage options with more confidence.

Using a mortgage borrowing calculator can provide an initial estimate of how much you may be able to borrow based on your financial circumstances. However, the exact amount a lender is willing to offer will depend on their individual affordability assessment.

In this article, we explain how lenders calculate how much you can borrow, what affects that figure and what steps you can take to increase your borrowing power. Let’s begin.

How Many Times My Income Can I Borrow?

One of the most common ways to estimate how much you could borrow for a mortgage is to multiply your annual income by a lender’s income multiple.

While each lender has its own income multiples and eligibility criteria, this can provide a useful starting point when estimating your borrowing potential.

To put this into practice, the table below shows how much you could potentially borrow based on different annual salaries and multipliers:

These figures are illustrative estimates based on income multiples, not guaranteed borrowing amounts. Actual mortgage offers will always depend on affordability assessments and individual lender criteria.

Some lenders may offer higher income multiples through specialist mortgage products designed for specific applicants, such as first-time buyers, key workers and NHS staff. These products could allow eligible applicants to borrow between 5.5 and 6 times their annual income, although additional eligibility requirements may apply.

It’s important to note that income multiples are only one part of a lender’s decision. Even if your salary suggests that you could borrow a particular amount, a full assessment will consider your monthly outgoings, existing financial commitments and other circumstances. This may reduce how much a lender is prepared to offer.

How Do Mortgage Lenders Assess Affordability?

While income multiples can provide an initial indication of your borrowing potential, lenders must also assess whether you will reliably be able to repay the mortgage based on your financial profile.

To assess the repayments that you could potentially afford, lenders will generally review the following:

Income and Employment

Lenders assess your income to establish how much you earn and whether your earnings are reliable enough to support the mortgage repayments. This can include your basic salary, overtime, bonuses and commission.

Each lender has its own affordability criteria and may assess additional income differently. For example, some lenders may include 100% of your bonuses or commission when calculating affordability, while others may only allow a set proportion or exclude additional income streams entirely.

For self-employed applicants, lenders will usually need to review business profits. This typically includes Tax Calculations (SA302) and Tax Year Overviews from the last two years, although some lenders may request additional evidence or accept one year’s trading history.

Monthly Expenses

While your annual income is important, your regular expenses will also determine how much disposable income you have available for mortgage repayments. This can include utilities, council tax, transport, childcare and other essential living costs.

Ultimately, lenders assess your monthly outgoings against your income to establish how much money you have remaining each month and whether you can comfortably afford the proposed mortgage repayments.

In addition, lenders may also consider the number of financial dependents you support, as this can affect your monthly expenditure.

Existing Debts

Outstanding debts and financial commitments can directly affect your finances and may reduce the amount you’re able to borrow, as they leave less of your income available for mortgage repayments.

Lenders will consider commitments such as credit card debts, personal loans, overdraft facilities and car finance, including the monthly payments you’re required to make.

Credit History

Lenders review your credit history to gain a better understanding of how you have managed your borrowing and repayments in the past.

Missed payments, defaults or County Court Judgements (CCJs) may affect your mortgage eligibility and the products available to you.

With that said, lenders assess credit issues differently, and so a poor credit history does not necessarily prevent you from getting a mortgage, although it will be taken into consideration.

Mortgage Term

The length of your mortgage will affect your monthly repayments and can influence how much a lender considers affordable.

Depending on the type of mortgage, a longer repayment term will generally reduce your monthly repayments, although you will typically pay more interest over the lifetime of the mortgage.

It’s important to note that lenders may also restrict the maximum mortgage term based on your age and anticipated retirement.

Future Financial Changes

In some cases, lenders may consider known or foreseeable changes to your financial circumstances that could affect your ability to maintain repayments.

For example, if you’re approaching retirement, a lender may assess whether your expected retirement income will be sufficient to support the mortgage. Certain products, such as retirement interest-only (RIO) mortgages, are specifically designed for older borrowers, with affordability assessed against their ability to maintain monthly interest payments.

How Much Will a Bank Lend Me for a Mortgage?

While mortgage lenders will assess many of the same financial factors, their criteria and willingness to accept certain income sources can vary considerably.

This largely comes down to each lender’s risk appetite. This refers to how much financial risk a lender is willing to accept and influences the types of applicants and income sources they are comfortable lending to. These policies and criteria can also change over time as lenders review their lending priorities.

A common example of this is how lenders assess additional or multiple incomes. Some lenders may accept 100% of certain benefit income when calculating affordability, while others may exclude it entirely.

Similarly, if you regularly earn overtime, bonuses or commission, one lender may consider all of these earnings, while another may only include 50% when calculating how much you can borrow.

As a result, it is possible for two banks to assess the same applicant and arrive at two different borrowing limits, despite reviewing the same financial information.

This is why comparing different lenders’ affordability criteria can be particularly valuable, especially if you receive income from multiple sources or have more complex financial circumstances.

A mortgage broker can assess your financial circumstances against different lenders’ criteria, helping you identify which lenders may accept your income and where you could potentially borrow more.

How Much Can I Borrow Based on My Salary?

As we touched on earlier, lenders use income multiples to help calculate your borrowing potential, generally based on your gross annual income (before tax and National Insurance deductions).

However, the income lenders accept and use for these calculations can vary depending on your employment type and earnings. For example:

• Employed applicants: Lenders generally consider your gross annual salary before tax and National Insurance deductions. Some lenders may also include additional earnings, such as overtime, bonuses or commission.
• Self-employed applicants: Lenders will usually assess your average profits over the last two to three tax years. For limited company directors, lenders may consider salary and dividends, with some also accepting retained company profits.
• Joint mortgage applicants: Lenders can combine the eligible income of both applicants when calculating how much they could borrow. Lenders will also assess both applicants’ financial commitments.

It’s important to distinguish between your total earnings and the income a lender is willing to accept. For borrowers who receive income from multiple sources, finding a lender that accepts as much of your earnings as possible could make a considerable difference to your overall borrowing potential.

For example, if you earn a basic salary of £40,000 alongside £10,000 in annual bonuses, one lender may assess your full £50,000 income, while another may only consider a proportion of your bonuses.

This means that two applicants with the same overall annual earnings could have different borrowing limits depending on how their income is structured and which lender they choose.

Does My Deposit Affect How Much I Can Borrow?

When applying for a mortgage, lenders will assess the size of your deposit alongside the amount you want to borrow. This is used to calculate your total loan-to-value (LTV) ratio, which represents the percentage of the property’s value covered by your mortgage.

For example, if you’re buying a property worth £250,000:

• 5% deposit (£12,500): You would need a £237,500 mortgage, giving you a 95% LTV
• 10% deposit (£25,000): You would need a £225,000 mortgage, giving you a 90% LTV
• 20% deposit (£50,000): You would need a £200,000 mortgage, giving you an 80% LTV

Your LTV ratio also helps lenders assess the level of risk associated with your mortgage.

The higher your LTV, the more money the lender has at risk relative to the property’s value. This means lenders will generally consider mortgages with higher LTVs to be a higher lending risk.

On the other hand, having a larger deposit reduces your LTV, making you a lower-risk borrower in this respect. This could provide access to a wider range of mortgage products and potentially more competitive interest rates.

However, it’s important to remember that your deposit and borrowing limit are two different things.

For example, if a lender agrees to lend you £200,000, your potential property budget would be:

• With a £20,000 deposit: £220,000
• With a £40,000 deposit: £240,000

This demonstrates how a larger deposit can increase your property budget without necessarily increasing the amount you’re eligible to borrow.

How Can I Improve My Borrowing Potential?

One of the most effective approaches to increasing your borrowing power can be to find a lender whose affordability criteria allow you to borrow more based on your individual circumstances.

However, there are also several practical steps you can take to improve your financial circumstances and potentially increase the amount you’re eligible to borrow. These include:

Reduce Your Existing Debts

Paying off outstanding credit card balances, personal loans and other debts can reduce your monthly financial commitments and improve your mortgage affordability.

Lenders consider your existing monthly debt repayments when calculating how much you can afford to borrow. Reducing these commitments could leave more of your income available for mortgage repayments.

Review Your Monthly Expenses

Once again, reducing regular outgoings can help improve your disposable income.

For example, reviewing subscriptions, recurring payments and other non-essential spending may help you identify opportunities to reduce your monthly expenses.

Improve Your Credit History

A stronger credit history may give you access to a wider range of lenders and mortgage products.

Before applying, consider checking your credit reports for errors, making payments on time and avoiding unnecessary credit applications.

If you’ve experienced previous credit problems, such as missed payments or defaults, the age and severity of these issues can also influence which lenders may consider your application.

Consider Your Income

While it is perhaps easier said than done, increasing your income can improve your borrowing potential. However, it’s equally important to consider the types of income you receive and whether your chosen lender will accept them.

For example, if you earn overtime, bonuses, commission or income from a second job, some lenders may accept all of these earnings, while others may only consider a proportion. Lenders may also require evidence that these earnings are consistent and sustainable.

Finding a lender that accepts a greater proportion of your income could therefore help increase your borrowing potential, even without an increase in your overall earnings.

Compare Different Mortgage Lenders

Every mortgage lender will have their own affordability criteria, meaning the amount you’re eligible to borrow can vary between providers.

Some lenders may accept a greater proportion of your additional income, while others may assess your expenses or existing commitments differently.

Working with a trusted mortgage broker can help you compare different lenders’ criteria against your circumstances, identify suitable mortgage options and potentially secure a higher borrowing limit.

Should I Borrow the Maximum Amount?

Ultimately, deciding whether to borrow the maximum amount available is a personal decision based on your financial needs and objectives.

Before making a decision, it’s important to review mortgage quotations and consider whether the monthly repayments would remain comfortable alongside your existing expenses and other financial commitments.

You should also consider how changes in your circumstances, such as a reduction in income or an increase in mortgage rates, could affect your ability to maintain repayments.

The aim is to borrow an amount that helps you achieve your property goals without leaving yourself financially exposed.

Working with a trusted mortgage broker can help you compare suitable mortgage options and understand the financial implications of borrowing different amounts.

At Boon Brokers, our dedicated mortgage advisers will talk you through your options, explain the monthly repayments and associated costs, and help you make an informed decision about how much to borrow based on your individual needs and financial circumstances.