Mortgages - How much can I borrow?

The first thing a prospective property buyer should ask before starting their search for a property is: ‘How much can I borrow for a mortgage?’

Lenders look at a number of things to calculate how much they will lend, such as your earnings and outgoings, your credit history, the amount of deposit being paid (if any) and the property value. Whatever they are prepared to lend, it is vital to be sure that you can afford the repayments.

For many years, mortgage lenders based loan amounts on earnings, typically around three times the salary of the person applying. But with the growth in self-employed applicants, a huge explosion in mortgage products available, long periods of low interest rates and more complex methods available for lenders to assess affordability, in recent years it became far more common for lenders to make an affordability assessment when calculating the amount they will lend you.

Until the recession, mortgages were being arranged at the equivalent of far higher income multiples than before. Now that the economic slowdown has caused a great reduction in the number of mortgages and mortgage products available, lending criteria has become stricter. Even so, there are still many deals available that equate to lending that is significantly more than three times income.

It is advisable to approach several sources to find out mortgage options. You could start by going online and typing into a mortgage calculator how much can I borrow.

You could then approach several banks and building societies, although they are almost certainly going to be tied to their own products and are likely to have stricter lending criteria than an independent mortgage broker. Brokers have access to a large range of deals, although be clear of what fees you are liable to pay for using their services.

In recent years many self-employed people with irregular incomes and without several years of certified accounts or other proof of income opted for a self-certification (or ‘self-cert’) mortgage offered on the basis of the applicant stating their likely income rather than proving their past income with documentary evidence. However, the range of mortgages available to the self-employed has been considerably reduced following the economic downturn.

Provide lenders with as much detail as possible about your earnings and outgoings so that you are offered a mortgage that is affordable. Bear in mind costs of buying, such as legal fees and stamp duty.

Your lender will arrange a valuation to ascertain how much the property's worth. They may limit the amount they are prepared to advance on certain property types such as a timber-framed home.

If a lender turns down your application it is worth shopping around as each lender has different lending criteria.

By Ben West