How much can I borrow for my mortgage? - Times Money Mentor (2024)

If you’re planning on applying for a mortgage in order to buy a home, it’s important to know how much you can afford to borrow.

We explain how to work out how much you can borrow, what your mortgage repayments would be and how you can boost your chances of getting the loan you want. Ready to get a mortgage? Use our mortgage comparison tool.

• What counts when you apply for a mortgage?
• Use our mortgage repayment calculator
• What mortgage could I get based on my income?

Read more: Will UK mortgage rates go down in 2023?

How do lenders work out how much I can afford?

If you’re looking to buy a new home, you may well be wondering how much you could borrow for a mortgage.

The mortgage amount, added to your deposit, will determine the maximum property price you can afford.

When you apply, your chosen lender will conduct an affordability check to calculate how much they can lend you. This involves examining your income and outgoings; the more money you spend each month, the less you might be able to borrow.

As part of their affordability assessment, lenders will consider criteria such as your:

• Employment status (whether you are employed or self-employed)
• Total gross income
• Regular outgoings (such as typical household bills)
• Student loan repayments
• Childcare costs
• Credit history

Traditionally, they would also calculate whether you would still be able to afford your mortgage if interest rates climbed to approximately 3%. However, with interest rates spiking in recent years, these “stress tests” have been largely scrapped.

If you are wondering, what kind of mortgage you should get, our guide to the different types of mortgages can help.

Mortgage affordability tests have changed

In 2014, the Bank of England introduced two mortgage rules to help control household debt and issues like repossessions which can trigger the economy.

The restrictions were put in place to ensure that borrowers did not become a threat to the financial stability of lenders by taking on debt they subsequently might not be able to repay.

These measures were a loan-to-income limit and the affordability test, which specifies a “stress interest rate” for lenders to consider when assessing a potential borrower’s ability to repay a mortgage over time.

Before, most lenders would use their standard variable rate plus three percentage points when “stress-testing” applicants’ finances. It meant if you couldn’t repay your loan at 3%, you your application would be rejected – even if you were paying rent far higher than this.

This barrier was scrapped in August 2022. However, the loan-to-income limit will remain in place.

Will it make it easier to get a mortgage?

The stress test assesses whether the buyer would still be able to afford their mortgage if at any point over the first five years of the loan, the mortgage rate was to be three percentage points higher than the reversion rate.

But this extra 3% was pushing some people out of getting the loan they need to get on the ladder, the Bank of England said.

That’s because interest rates are rising and an increasing number of banks are now factoring the cost of living crisis into applications.

The Bank of England’s own figures state the affordability test means around 30,000 buyers a year are forced to take out a smaller mortgage.

Simplifying the process means borrowers such as first-time buyers, who are able to pay high rents but unable to pass a lender’s ‘stress test’ will have a better chance of getting on the ladder. It may also make it easier for the self-employed and freelancers to get a mortgage.

Of course, it all depends on whether banks will pass it on. Some lenders will also still use some form of testing but to their own choosing according to their risk appetite.

Mortgage borrowing calculator

When working out how much you could borrow, it is important to know what your repayments are likely to be.

Use our free mortgage calculator tool below to calculate your monthly mortgage repayment amount. The tool is designed for a wide range of borrowers – whether you are looking to remortgage, are a home mover or first-time buyer, or whether you are after a buy-to-let mortgage.

How many times my salary can I borrow for a mortgage?

Lenders will typically use an income multiple of 4-4.5 times salary per person.

For example:

• If you earn £30,000 a year, you may be able to borrow anywhere between £120,000 and £135,000
• If you earn £50,000 a year, you may be able to borrow anywhere between £200,000 and £225,000
• If you earn £70,000 a year, you may be able to borrow anywhere between £280,000 and £315,000

However, lenders will sometimes offer a mortgage that is 5 times your salary. So if you earn £40,000, you may be able to borrow up to £200,000.

If applying for a joint mortgage with another person, you may be able to borrow 4-4.5 times your combined salaries.

Meanwhile Nationwide Building Society, the biggest mortgage lender in the UK, announced last year that it would lend up to 5.5 times income to first-time buyers with a 5% deposit.

Other lenders may also be willing to advance money at this salary multiple to higher earners. Barclays, for example, will lend up to 5.5 times income to applicants with a salary of at least £75,000 a year.

If part of your income is made up of bonuses, commission or overtime, this will make it more difficult to know exactly how much you can borrow. The decision on whether additional earnings on top of a basic salary will be counted depends on individual lenders.

NatWest, for example, will take the average of the past two years of a guaranteed bonus. If your bonus is discretionary (it isn’t written into your contract), NatWest will calculate the average but only include 50% of that when adding it to your regular income.

Mortgage borrowing calculator

How much you can borrow will vary between different lenders, and it is not always clear why some are willing to lend more than others.

This is where mortgage brokers may be helpful. They will assess the market in general and are likely to know which lenders would advance you the most money. See our round-up of the best mortgage brokers.

To search for the best mortgage deals, try our free mortgage comparison tool below.

How much will a bank lend me if I’m self-employed?

If you are self-employed, you will need to provide evidence of how much you earn each tax year. This will be shown through the annual tax returns you file to HM Revenue & Customs.

A summary of your earnings and a tax year overview can be found on the SA302 form on the government’s self-assessment portal. You can get your SA302 tax calculations for the past four years.

You will typically need at least two years of tax returns, but a very small number of lenders will accept one year.

If you work as a contractor, you may need to provide recent payslips and a copy of your employment contract.

Self-employed mortgage: how much can I borrow?

As long as you pass the affordability checks, you should have access to the same deals as people who are employed in a steady job.

So you should be able to borrow up to 4.5 times or even 5.5 times your annual income.

Looking for tips on how to pay off your mortgage? Watch our video below.

Does the size of my deposit make any difference?

Yes – the larger the deposit, the cheaper your mortgage is likely to be.

This is because:

• The size of your loan will be smaller
• Plus, you will get access to the best interest rates (lenders may view you as less risky if you are putting a significant sum of money into the property yourself)

The cheapest mortgage deals are usually available to people with a deposit of at least 40%. If you have a deposit of just 5% then you can expect the interest to be higher in comparison.

Find out: Should I buy a home with a 5% deposit mortgage?

Can I borrow more on a joint mortgage?

A joint mortgage is when you apply for a mortgage with another person – perhaps a spouse, partner, family member or friend. You may have the benefit of two salaries when you apply, meaning you can borrow more.

For example, if one person earns £30,000 and the other £25,000, this would give a joint income of £55,000, meaning you would typically be able to borrow £220,000-£247,500 (4-4.5 times total annual income).

Most lenders only accept joint applications from two borrowers, but some may accept a joint application from up to four people.

Does bad credit affect how much I can borrow?

All lenders will run a credit check when you apply for a mortgage. This means looking at your credit report for evidence of how you have managed loans in the past, and whether you are likely to be a responsible borrower.

If you have taken out loans before and always made repayments on time, you are likely to have a good credit score on your report.

But if you have struggled with loans in the past, then you may have a bad credit store.

This might affect how much money a lender is willing to advance to you (see our guide on mortgages for those with bad credit) and you may have to pay a higher interest rate as there will probably be a narrower range of lenders willing to take you on.

For more information, check out everything you need to know about credit scores.

So, what sized mortgage can I get?

Lenders will have different affordability criteria, but it’s not always clear what they will require before you apply. It is best to speak to a mortgage broker to check you are getting the best deal for your circ*mstances.

As a first step, try our mortgage comparison tool* to see the cheapest interest rates according to the size of your deposit and how much you are looking to borrow.

If you are a first-time buyer, our guide on how to get your first mortgage can help.

Should I max out on my mortgage?

This is a very personal decision. The answer to this may depend on:

• How secure your job is
• Your lifestyle and monthly outgoings
• Whether you have dependants
• How long you intend to stay in the property
• What your future goals are

For example, if you are buying your “forever” family home, you may think it is worth stretching your budget and accepting the maximum mortgage amount you are offered.

On the other hand, if you are nervous about your job security or you expect to reduce your working hours at some point in the near future, then you may want to be more conservative about how much you borrow.

Ultimately, it depends on whether you feel comfortable with the monthly mortgage repayments. Use our mortgage repayments calculator as a first step to see what these are likely to be.

For ideas on how to boost your mortgage borrowing power, check out: Seven tips to help you get a mortgage.

*All products, brands or properties mentioned in this article are selected by our writers and editors based on first-hand experience or customer feedback, and are of a standard that we believe our readers expect. This article contains links from which we can earn revenue. This revenue helps us to support the content of this website and to continue to invest in our award-winning journalism. For more, seeHow we make our moneyandEditorial promise.