Want to know how much you can borrow?
It might well be that you don’t want or can’t afford to borrow the maximum, but it is good to start with what is possible before planning your purchase or re-mortgage.
The following is what you need to know and how you can find your maximum borrowing.
How lenders decide
Mortgage lenders have a duty to assess what mortgage you can afford to pay back and not lend more than that. Each has its own way of working that out, so maximum borrowing will change from lender to lender.
The basics of the calculations
Basically, income minus spending equals affordability.
How lenders treat various sources of income (overtime, benefits, commission etc.) varies, they might take 100% or 50% or maybe nothing. For the self-employed or company directors, lenders' attitude to things like dividends and fluctuating profits varies.
They then deduct committed expenses, things like maintenance and loan/credit card payments that you are obliged to pay.
The old-fashioned way of calculating maximum loan size
The simple and old way was to calculate the maximum loan size by taking income minus expenditure and multiplying that by something like 2.5 times the income of the main earner plus one times any second income or by multiplying the joint income by say 2.75 times.
The new way of calculating maximum loan size
The new way is complicated: Lenders throw in factors like age, number of children, travel costs, expected future interest rates, mortgage type etc. when calculating affordability.
Once the lender has noted all the factors, they use a “black box” computer calculation to give maximum borrowing.
What that all means in practice
- Your exact circumstances will determine the maximum you can borrow.
- Each lender will have a different answer.
- There is no best lender for everybody.
Our experience and investigations show that for most people the maximum borrowing possible is currently 5 times joint income but that doesn’t mean that everybody can borrow that much (and a select few can borrow more).
How to find your maximum
You could go to each lender in turn. Once you have told them all about your personal circumstances and separate income and expenditure items, the lender can do their calculations and tell you how much you can borrow from them. You can then move on to the next lender etc.
We think that we have a better idea… Rather than go through all that multiple times, why not do it just once?
Find out which lender will offer you the maximum (and if you don’t need the maximum, which lenders will lend you what you need) via Slough Mortgage Centre.
We can go through the details just once and then do the legwork by using our IT systems and knowledge to find the mortgage that matches your needs (all done confidentially). Book your free appointment by calling us now on 01753 616734.
Slough Mortgage Centre, a trading name of True Mortgage Advice Ltd, is an Appointed Representative of Julian Harris Mortgages Ltd. Musgrove, Ashford, Kent TN23 7UN, which is authorised and regulated by the Financial Conduct Authority no. 304155.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Please note that some mortgages such as commercial BTLs are not regulated by the FCA.
The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk.
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