How much can I borrow?
The amount you can borrow will generally depend on two key factors: the amount you – and your partner if required – earn; and your outgoings. The key issue is how much you can afford.
Until recently, all lenders worked on an income multiples basis. This is literally a case of multiplying your salary by the lender’s multiple figure and the total is how much you can borrow. If you have a joint application, there will either be a different multiple of the combined salary, or a certain amount of times one salary plus a different amount times the second.
Lenders are more advanced nowadays, and many of them don’t advertise specific multiples, but instead use an affordability equation. Put very simply, they will look at your income and outgoings and work out how much you can afford to pay each month in mortgage payments. They’ll then calculate the amount you can borrow based on that repayment figure.
It’s tough to work out how much you can borrow based on an affordability calculation, although you can contact any lender who will be happy to tell you. The easiest option is to use income multiples. In the current conservative lending climate, most lenders will offer a maximum of four times a single applicant’s base income, or about three times a joint income. Some lenders will go higher under certain circumstances, while others are more restrictive.
Pretty much every lender nowadays will also look at your outgoings when it comes to deciding how much they will lend you. In today’s debt-ridden culture, the lender needs to take into account any other financial commitments you have, and large debts will reduce your ability to borrow. If you can cut your student loans, credit cards and other debts, you’ll be looked on far more favourably. If you pay maintenance to a former partner, or have any other legal commitments, you’ll also need to declare those.
Remember that just because the lender offers you a certain sum, it is your responsibility to ensure you can comfortably repay the debt. It is in no-one’s interest to borrow more than you can afford to repay.
Click here to use our calculator Click Me
Using a broker
Around half of all mortgages are sold via an intermediary – an independent financial adviser or mortgage broker.
Using a broker does give you a number of advantages – they will have expertise across the whole of the mortgage market and – especially if you are not a standard borrower – may be able to come up with solutions that you would not have thought of previously. There are also a number of products, particularly in the buy-to-let and adverse credit sector, but also to standard borrowers, that are only available via an intermediary.
Many brokers will also argue that applying via an intermediary will give you a better chance of success in getting the mortgage. Because they know what lenders are looking for, they are able to help you present yourself in a way that casts your application in a more favourable light.
However, brokers do not have access to the whole of the mortgage market. Some lenders won’t accept applications from intermediaries because, they say, they want to know the customer themselves rather than have a relationship via a third party. So even if you do decide to use a broker, it’s worth checking around yourself as well.
Brokers earn their money in two ways, and they are legally required to tell you which way before you come to any agreement.
The most common is that a broker will charge you nothing, but instead takes a commission from the lender for placing a mortgage with them.
The alternative is to charge the customer a fee, normally based on an hourly rate. In some cases, if the broker also gets the commission, this will be returned to you.
In all cases, a broker should provide you with all the information regarding costs, and the reasons for recommending a particular deal before you take the mortgage.