How to Get a Bigger Mortgage
Have you found your dream property, but your chosen lender has declined to lend the amount required to complete the purchase?
Unfortunately, for many, this is an all too familiar experience and it can be frustrating and heartbreaking, especially if you have your heart set on a particular property. The good news is there are several ways you can improve your financial standing to borrow more.
Let’s discover how to get a bigger mortgage.
How Much Can You Borrow?
When you approach a mortgage lender to borrow money, they conduct assessments to ensure you can repay the loan. Some of the assessments can seem counterintuitive, particularly if you are already paying rent at a higher value than the mortgage you want.
There are two common types of assessment that a lender conducts. For residential mortgages, a lender will process an affordability calculation. For Buy to Let mortgages a lender conducts a rental stress test.
For the purpose of this article, we are focusing on affordability calculations for residential mortgages. An affordability calculation will allow you to borrow a multiple of your annual salary. Typically, lenders allow you to borrow up to 4.5 times your annual salary, however there are lenders who allow you to borrow more.
For example, if you earn £25,000 a year, a lender with a 4.5 times calculation will allow you to borrow up to £112,500. A simple way to increase the amount you can borrow is to add your partner to the loan, if they have useable income and a good credit score, which allows the lender to factor in their income to the calculation as well.
Tips to Increase the Amount You Can Borrow on a Mortgage
Aside from adding someone else to your mortgage, there are other ways you can afford your dream home. Some steps will allow you to extend the amount you can borrow whereas others allow you to budget better for the term of the mortgage.
Increase Your Income and Reduce Your Financial Commitments
It may seem obvious, but the best way to increase the maximum mortgage sum available to you is to increase your income and reduce your financial commitments. Whether you work longer hours to earn overtime, hit company targets to achieve a bonus, or take a second job, there are a number of ways to increase your income. If you are employed, this additional income will need to be demonstrated on your latest 3 payslips. If you decide to increase your earnings in a self-employed capacity, you will need to wait until your next set of Tax Calculations and Tax Year Overviews are published with HMRC before you can use the income.
If you can remove or reduce your financial commitments, which are outgoings that appear on your Credit File like personal loans, hire purchases, credit cards, etc, that can also increase the maximum mortgage sum available. Just remember that it takes between 4-6 weeks for your credit file to update.
Increase Your Deposit
If you increase your deposit, this can also increase your maximum mortgage sum. However, this only applies if you are initially depositing the minimum sum available. For example, most mainstream mortgage lenders demand that you deposit at least 5% of the purchase price as a minimum. Therefore, if you deposit £10,000, you are limited to a maximum purchase price of £200,000 and a mortgage sum of £190,000. This is regardless of your income and financial commitment position. Whereas, if you increase your deposit to £20,000, you are then limited to a maximum purchase price of £400,000 and a mortgage sum of £380,000.
Extend the Loan Term
Extending the overall mortgage term can also increase the mortgage sum available. This is because if your payments are spread out over a longer period, your monthly repayments will naturally become more affordable. This impact is most significant where the change in term is greatest. For example, increasing the mortgage term from 10 years to 35 years will have a larger impact than an increase from 30 to 35 years.
Improve Your Credit Score
Credit scoring is an important part of the mortgage application process, and you may find your score prevents you from approaching a favourable lender. For example, a high street lender may offer you 5 times your annual income for a mortgage but have strict credit scoring criteria that prevent you from applying to them. Check My File offer a comprehensive credit report from the Experian, Equifax and TransUnion credit agencies.
Improving your credit score takes a dedicated effort but credit reference agencies often provide actionable steps to take and improve your score. Simply registering to vote can improve your credit score.
Organise Your Accounts
Alongside your income and financial commitments, lenders also look at your general expenditure. If you have lots of subscriptions or direct debits for services set up on your account, this can impact the amount you are able to borrow.
Before you apply for a mortgage, comb through your accounts cancelling subscriptions you no longer need. If you have services without a contract, you can also cancel these. Any services where you are in contract however should not be cancelled as missing payments on these can negatively impact your credit score.
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What Type of Income do Lenders Accept?
Lenders have different rules about the type of income they will accept. Some lenders are very strict and only allow income from employed or self-employed work. There are lenders who are more lenient and allow you to include pension or benefit income.
Approaching the correct lender who accepts all your income can make a marked difference in the amount you can borrow. It can be the difference between borrowing enough to get your dream home or not. For this reason, using a fee-free broker, like Boon Brokers, to source and arrange the mortgage for you can be a blessing.
Other Factors Lenders Consider
There are other expenditures lenders factor into their affordability calculations that might catch you by surprise. For example, some lenders will deduct child maintenance or spousal support from your affordability calculation.
There are a number of lenders that will take your current rental payment into account on an affordability calculation even though these payments will cease when your purchase completes. Finally, how you manage your bank account such as overdraft usage can significantly impact your borrowing amount and some lenders will decline a mortgage application if you are constantly using your overdraft.
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How a Mortgage Broker Can Help
As you might expect, it can be difficult to match your personal circumstances with a lender that will be most suitable to you. As there are over 90 regulated lenders on the market, unless you approach each lender separately, it will be difficult for you to source your most suitable mortgage by yourself.
Mortgage brokers will complete a financial questionnaire and then use this information to match you to the best lender for your situation. By using a mortgage broker, you are more likely to approach a lender who will allow you to borrow the amount you need for your dream home at the lowest cost.
Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provide fee free, no obligation mortgage advice. With Boon Brokers, no client fee is charged at any stage of the process as we receive a commission from the lender on completion. This commission payment has no adverse impact on you.
Contact Boon Brokers to find out which lender is best for you today.