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Understanding Mortgage Affordability: How Much Can You Borrow?

By zincdigital9,

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‘How much mortgage can I borrow’ is quite possibly one of the most common questions we’re faced with here at Allegro Mortgages. Without a good understanding of your mortgage affordability, you’re not able to truly know what house prices are in your budget, or the long term costs of your loan. We want to ensure that our customers have a team that can help them navigate the complexities of mortgage affordability, allowing you to make an informed and sensible financial decision.

So, what is mortgage affordability? This refers simply to the amount of money that a lender is willing to loan you. It’s based on a number of factors including your income, outgoings, credit history and lender criteria.

Your income is crucial to the amount you can borrow for your mortgage. Lenders will take into account your gross yearly income, including secondary sources of income such as bonuses, commissions, overtime or rental income, providing there is evidence that this is consistent. If you’re self-employed, you’ll need to evidence your income over a few years. Take a look at our guide to learn more about how we can help with self-employed mortgages.

Upcoming changes in income
If you have an upcoming pay rise or job change that will positively impact your income, evidencing this with a letter can be enough evidence for some lenders to take this into your mortgage affordability calculation.

Expenses and debt obligations
Just as lenders evaluate incomings, they need to look into outgoings as well. Your existing financial commitments, such as credit card debts, loans, car payments and other monthly expenses are taken into account, as they enable lenders to know if you are able to comfortably afford the mortgage payments alongside the rest of your usual outgoings.

Credit history
Your credit score and history tell lenders what kind of borrower you are, and give information about your financial history. If your credit score is higher, you’re more likely to qualify for a larger loan amount and secure a more favourable interest rate.

Interest rates and affordability stress testing
Interest rates are constantly changing, affected by many factors. If this is higher, your monthly costs are likely to be higher, affecting your affordability and sometimes impacting the overall amount you can borrow. Lenders do an affordability stress test as part of their assessment, to ensure that you are able to afford your payments even if rates were to rise or your financial circumstances change.

Deposit size
A larger deposit amount can open the door to better mortgage deals and a higher borrowing limit. This is because you have a smaller Loan to Value (percentage of the house value that you are borrowing); so, for example, if you wanted to purchase a £300,000 home, having a 20% deposit would have you at a LTV of 80%. The smaller this LTV number is, the more preferable rates are on offer.

Mortgage terms
The length of your mortgage borrowing term can also affect how much you can borrow; with a longer mortgage, payments are lower, so you might be able to afford to borrow a different amount.

Income multiples
The calculations that lenders use to ascertain mortgage affordability can vary widely. It’s not uncommon to see lenders offering 5 times annual income, however we’ve seen others offer 5.5 and 6 times the income for young professionals, under the expectation that their income will increase rapidly.

You can maximise your borrowing potential by making sure your mortgage advisor knows about every income stream you have, accompanied by evidence, to provide to lenders. It’s also a good idea to clear debts whenever possible, and make sure your broker is aware so that they can advise about the timing of this in relation to your mortgage applications.

How Much Can I Borrow?
While every individual’s financial situation is unique, our team at Allegro Mortgages works closely with you to determine a borrowing amount that aligns with your financial goals and lifestyle. By assessing your income, expenses, credit profile, and the lender’s criteria, we can provide personalised guidance on your borrowing capacity.

Our Commitment to You:
At Allegro Mortgages, transparency and client satisfaction are at the forefront of everything we do. We’re dedicated to providing clear, comprehensive information about mortgage affordability, empowering you to make confident decisions about your home financing needs.
Ready to explore your mortgage options? Contact us today to speak with one of our experienced mortgage advisors and take the first step toward securing your dream home.