Mortgage Affordability: How Much Can You Borrow in the UK?
Mortgage Affordability: How Much Can You Borrow in the UK?
Understanding mortgage affordability is crucial when buying a home. This guide explains how lenders calculate how much you can borrow and what factors affect your mortgage application.
How Much Can You Borrow?
Most UK lenders use income multiples to determine borrowing capacity:
- Standard multiple: 4.5x your annual salary
- Higher earners: Up to 5.5x salary (some lenders)
- Joint applications: Based on combined income
Example Calculations
Single Applicant (£40,000 Salary)
- Standard multiple: £40,000 × 4.5 = £180,000
- Higher multiple: £40,000 × 5.5 = £220,000
Joint Applicants (£40,000 + £30,000)
- Combined income: £70,000
- Standard multiple: £70,000 × 4.5 = £315,000
- Higher multiple: £70,000 × 5.5 = £385,000
Affordability Assessment
Lenders also check monthly affordability:
Key Factors
- Monthly income - Take-home pay after tax
- Monthly outgoings - Bills, loans, credit cards
- Stress testing - Can you afford if rates rise?
- Deposit - Typically 5-20% of property value
Example Affordability Check
Income:
- Annual salary: £50,000
- Monthly take-home: £3,125
Outgoings:
- Council tax: £150
- Utilities: £150
- Food: £300
- Transport: £200
- Other bills: £200
- Total: £1,000
Available for mortgage:
- Monthly income: £3,125
- Less outgoings: £1,000
- Available: £2,125/month
At 5% interest rate:
- Can borrow: £395,000 (25-year term)
- Monthly payment: £2,125
Deposit Requirements
| Deposit % | Property Value | Deposit Amount | Loan Amount |
|---|---|---|---|
| 5% | £200,000 | £10,000 | £190,000 |
| 10% | £200,000 | £20,000 | £180,000 |
| 15% | £200,000 | £30,000 | £170,000 |
| 20% | £200,000 | £40,000 | £160,000 |
Benefits of Larger Deposits
- Better interest rates
- Lower monthly payments
- More lender options
- Avoid higher LTV (loan-to-value) rates
Interest Rates Impact
Interest rates significantly affect affordability:
£200,000 Mortgage (25 years)
| Interest Rate | Monthly Payment | Total Interest |
|---|---|---|
| 3% | £948 | £84,400 |
| 4% | £1,056 | £116,800 |
| 5% | £1,170 | £151,000 |
| 6% | £1,289 | £186,700 |
Stress Testing
Lenders test if you can afford higher rates:
- Standard test: Can you afford if rates rise by 3%?
- Example: If offered 4%, can you afford 7%?
- Protects against future rate rises
Factors Affecting Affordability
Positive Factors
- High income - More borrowing capacity
- Low outgoings - More available for mortgage
- Large deposit - Better rates, lower payments
- Good credit score - Better rates
- Stable employment - Lenders prefer this
Negative Factors
- High debt - Reduces available income
- Poor credit history - Higher rates or rejection
- Self-employment - May need 2-3 years accounts
- Contract work - Less stable income
- High outgoings - Less available for mortgage
Using Our Calculator
Our Mortgage Calculator helps you:
- Calculate monthly payments
- See total interest paid
- Compare different interest rates
- Plan your mortgage strategy
First-Time Buyer Help
Help to Buy Schemes
- Help to Buy ISA - Closed to new applicants
- Lifetime ISA - 25% government bonus
- Shared Ownership - Buy part, rent part
- First Homes Scheme - 30-50% discount
Stamp Duty
- First-time buyers: No stamp duty on properties up to £425,000
- Standard: No stamp duty on properties up to £250,000
- Above thresholds: Progressive rates apply
Mortgage Types
Repayment Mortgages
- Pay off capital and interest
- Own property at end of term
- Higher monthly payments initially
Interest-Only Mortgages
- Pay interest only
- Lower monthly payments
- Must repay capital at end
- Less common now
Fixed Rate
- Rate fixed for 2-5 years
- Predictable payments
- Protection from rate rises
Variable Rate
- Rate can change
- Usually lower initially
- Risk of rate increases
Improving Affordability
1. Increase Deposit
- Save more before buying
- Consider Help to Buy schemes
- Get help from family (gifted deposit)
2. Reduce Outgoings
- Pay off debts
- Cancel unnecessary subscriptions
- Reduce monthly bills
3. Increase Income
- Ask for pay rise
- Take on additional work
- Wait for salary increase
4. Improve Credit Score
- Pay bills on time
- Reduce credit card balances
- Check credit report for errors
Common Mistakes
- Borrowing maximum - Leaves no buffer for emergencies
- Ignoring other costs - Legal fees, surveys, moving costs
- Not stress testing - What if rates rise?
- Underestimating bills - Council tax, insurance, maintenance
Getting a Mortgage
Steps
- Check your credit score - Free from credit agencies
- Get agreement in principle - Shows what you can borrow
- Find a property - Within your budget
- Apply for mortgage - With chosen lender
- Complete purchase - With solicitor
Documents Needed
- Payslips (3-6 months)
- Bank statements (3-6 months)
- Proof of deposit
- ID and address proof
- Employment contract
- Self-employed: 2-3 years accounts
Important: Mortgage affordability rules are strict. Always get professional advice and use our mortgage calculator to understand your borrowing capacity before house hunting.