HOW MUCH CAN YOU BORROW?


This depends on:
  • how much you earn and
  • how much the property you want to buy is worth.


1) How much you earn

The amount you can borrow will vary between lenders but the rule of thumb is three times your annual earnings. However typical variations would include:

Couple 1: two and a half times both annual incomes.
Couple 2: three to three and a half times the greater income plus one year of the second income.

Here's a secret: Assuming you have a regular income and clean credit history you're likely to get a loan fairly easily. Despite the impression you may be given that you've got to jump through the hoops, the competition between lenders to get your business is fierce.

Some lenders now use more sophisticated credit rating methods, where they examine your income and your outgoings. The idea is that every borrower has unique circumstances. Someone with teenage children and high outgoings can't afford to borrow as much as a singleton earning the same salary.

Sometimes people are lent five times income.

2) How much the property is worth.

Most lenders will loan up to 75% of the property's value. (This is known as the Loan to Value ratio)

Some will lend up to 90 or 95% of the property's value.

Some will let you have up to 100% ie a 100% mortgage - but you'll pay over the odds for this and will probably be forced to buy mortgage indemnity insurance (bad).

A few will even lend more than 100% but special rules will apply.

Depending on the area you want to buy in, the lender may refuse a loan, for example if they feel the property isn't expensive enough for the area.

More often, it's the opposite case - where a property is seen as too expensive.

Note that how much you can borrow is not necessarily what you can afford

You may be able get a mortgage which stretches your budget to the limit but leaves you in trouble when you have to pay the other costs involved in buying your home and its future running costs

Some lenders will want to estimate this by checking your average outgoings eg your household bills, any debts etc. Some will get you to fill in a detailed questionnaire either by hand or on the phone or online etc.

If you're a first time buyer it will always help if you can show you've been paying regular rent for a similar amount to what your intended mortgage payments will be.