How Do Mortgage Lenders Decide How Much You Can Borrow?

If you’re planning to buy a home, one of the first questions you may ask is: how much can I borrow for a mortgage? The answer isn’t based on your salary alone. Mortgage lenders consider a range of factors to assess whether you can comfortably afford the repayments.

Understanding these factors can help you set a realistic property budget before you start house hunting.

How does your income affect mortgage borrowing?

Your income is one of the main factors lenders consider. They may look at your basic salary, overtime, bonuses, commission or self-employed income, depending on your circumstances and the lender’s criteria.

Some lenders may use different calculations when assessing variable income, so the amount you can borrow isn’t necessarily the same with every mortgage provider.

For joint applications, lenders will generally consider the income of both applicants, although they will also assess your combined financial commitments.

Your monthly outgoings matter

Lenders don’t simply multiply your salary by a particular number. They also look at your regular expenditure to establish whether you can afford the proposed mortgage payments.

This can include household bills, loans, credit cards, childcare costs, insurance, travel and other regular commitments. Two people with identical salaries could therefore have different borrowing capacities because their monthly outgoings are different.

Does your credit history matter?

Your credit history can also form part of a lender’s assessment. Lenders may consider your previous borrowing and how you’ve managed credit, as well as any missed or late payments.

Having a strong credit history can be helpful, but there isn’t one universal credit score that guarantees mortgage approval. Different lenders have different criteria, and a mortgage despite a bad credit score may still be possible.

How does your deposit affect borrowing?

The size of your deposit is another important consideration. A larger deposit generally means you need to borrow less and may give you access to a wider range of mortgage products. It can also result in a lower loan-to-value (LTV) ratio.

However, having a smaller deposit doesn’t necessarily prevent you from getting a mortgage. The options available will depend on your circumstances and the lender’s criteria.

What other factors do mortgage lenders consider?

Lenders may also consider your age, employment status, existing debts, dependants and the type and value of the property you’re buying.

For example, a self-employed applicant may need to provide additional evidence of their income, while certain property types can have specific lending criteria.

The lender will also assess the mortgage itself, including the loan amount requested and the property’s value.

How can a mortgage adviser help?

Working out how much you can borrow can be more complicated than using a simple mortgage calculator.

A mortgage adviser can assess your circumstances and help you understand the borrowing options available from different lenders. They can also explain how factors such as your income, expenditure, deposit and credit history could affect your application.

Importantly, the maximum amount you can borrow isn’t necessarily the amount you should borrow. Making sure the mortgage is affordable alongside your other financial commitments is just as important as finding out your maximum borrowing potential.