How to get the best mortgage deal What a mortgage lender will lend you
Find out what percentage of a property's value you're likely to be able to borrow when you take out a mortgage.
Lenders use affordability calculations to figure out what they will lend to you. This involves them looking at your income and outgoings to work out how much you can afford to pay back.
This will typically work out to be between three and five times your income - although they will also look at other things such as whether you would still be able to afford the loan if interest rates increased.
- Call Which? Mortgage Advisers on 0808 252 7987 for personal, impartial advice on the best mortgage deal for your personal circumstances
What percentage can you borrow?
The 'loan-to-value' or LTV is the amount you are borrowing in relation to the cost of the property you are buying. It’s expressed as a percentage of the property's value. So, if you are buying a property for £200,000 and borrowing £180,000, your LTV is 90%.
All deals allow borrowing up to a maximum LTV – 75% or 90%, for example. In general, the lower your LTV, the lower the mortgage rate and the cheaper the deal overall you will be able to get.
Go further: Which? Money Compare tables - compare some of the best deals on the market
If you're putting down a deposit of 25% or less, you might have to pay a higher-lending charge (HLC), which can amount to hundreds or even thousands of pounds.
These charges are typically used by the lender to buy insurance to protect itself against you defaulting on your repayments. They usually apply to high-LTV mortgages as the higher the LTV, the more likely it is that you will default. However, most lenders no longer charge them.
HLCs are normally calculated as a percentage of the portion of the loan in excess of 75% of the property’s value. So, if you are borrowing £180,000 to buy a house costing £200,000 (90% LTV), you'll pay an HLC on £30,000.
A typical charge might be 6% of this amount so you would pay £1,800.
You should factor in the cost of higher-lending charges when choosing your mortgage. Avoid adding the charge to your mortgage, if possible, as you will end up paying interest on it for the life of the loan.
For more on mortgage fees, see the next page of this guide.
Need a mortgage?
Working out how much a mortgage lender will lend you can be tricky and will be based on your personal circumstances.
Our independent mortgage advice service, Which? Mortgage Advisers, takes the time to understand your circumstances and guide you through the whole journey to make it as stress free as possible. Call one of our expert advisers on 0808 252 7987.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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