How much you can borrow will depend on the value of your property, or the property you are buying, and the amount of income you have. It also depends whether the mortgage is to be based on the income of a single applicant, or joint applicants.
The formula used differs from one lender to another, with some adopting 'income multiples' as a guide, and others basing the maximum you can borrow on an 'affordability calculator'.
Income multiples
There is a wide variation of income multiples in use between lenders, but a common and conservative calculation would be something like:
- Single borrower: 3 X income
- Joint borrowers: 3 X main income plus 1 X second income, or 2½ X joint incomes, whichever gives more.
For example:
- Single borrower earning £21,000 a year:
£21,000 X 3 = loan of £63,000 - Joint borrowers: Applicant A earns £19,500 a year
Applicant B earns £16,750 a year
£19,500 X 3 = £58,500, + £16,750 = loan of £75,250
or £19,500 + £16,750 = £36,250 X 2½ = loan of £90,625.
While some lenders are conservative in the 'income multiples' they use, others may be more generous, and it may be possible to borrow up to four or, in some cases even five times your salary (for certain professions). Whilst loans at this level may be available, it is important not to overstretch yourself as your mortgage payments need to be manageable, and you need to take into account what will happen if interest rates rise.
Affordability calculator
Other lenders do not use 'income multiples' at all, but use their own 'affordability calculator' to work out the maximum they believe you can afford to borrow, taking into account your income and expenditure. This is effectively a budget calculator which works out potential outgoings as a percentage of income.
Other considerations in the calculation
Both income multiple and affordability calculators are just a guide, and the basis of a lender's calculations are complex. They will also take into account ongoing financial commitments such as other loans and credit card balances where appropriate, which will affect the amount you can borrow too.
What constitutes 'income' also differs from lender to lender. Some will include payments like overtime and commission in the figure they multiply if it is regular, while others add it on just once or even disallow it altogether. For this reason any assessment of income is just a guide, and the maximum you could borrow could fall somewhere in a range of figures, depending on your circumstances and the lender.
These differences make it quite complex to calculate how much you may be able to borrow. To help you work it out, you can use the 'max borrowing' calculator in our online mortgage tools.
If you want help to calculate how much you may be able to borrow, call to speak to us personally on 0845 021 0212
