Getting a mortgage
How much can you borrow?
By Marie Kemplay
Article 1 of 10
How much can you borrow?
Find out how much a bank is likely to lend you and how the 'loan-to-value', or LTV, affects your mortgage deal
You’ve found your dream home at the ideal price. The search is over - but now it’s up to the banks. Can you borrow enough to secure that perfect property?
Our guide explains how lenders assess affordability, how loan to value ratios work, and how much lenders are likely to offer.
- Call Which? Mortgage Advisers on 0808 252 7987 for personal, impartial advice on the best mortgage deal for your personal circumstances
Mortgage lenders and affordability
The amount you're able to borrow from a mortgage lender will depend largely on how much you can afford to pay back.
As a rule of thumb, banks and building societies will let you borrow up to four and a half times your income. Above this threshold, regulations are in place to limit borrowings.
When deciding how much to lend you, a mortgage provider will do an ‘affordability assessment'. Essentially, this means looking at the amount you typically earn in a month compared with how much you spend.
Lenders are also interested in the types of things you spend your money on. Some expenses can be quickly cut-back, while others are less flexible - a gym membership, for example, may be easy to cancel whereas childcare costs are likely to be fixed.
Your lender will ask about things such as:
- Regular income from paid work
- Any benefits that you receive
- Income from other sources
- Debt repayments e.g. student loan, credit card bills
- Regular bills e.g. gas, electricity
- Transport costs
- Typical grocery costs
- Spending on leisure activities
The lender will also compare what you say with recent bank statements and wage slips. See our 'Applying for a mortgage' guide for more detail on the documents you need for an application.
Mortgage calculator: how much can I afford to borrow?
Click on the link below to download the Which? mortgage affordability calculator. This calculator will help you to figure our how much you can afford to spend on mortgage repayments each month, based on your monthly income and outgoings.
How the loan-to-value, or LTV, affects your mortgage
The deal you get from a mortgage lender is generally based on the share of the property value you’re planning to borrow on top of your deposit. This is known as the 'loan-to-value' ratio, or LTV.
So, if you are buying a property for £200,000 and borrowing £180,000, your LTV is 90%.
Here's a handy table to show you what LTV you’ll have based on the deposit you’ve saved.
Lenders will set a maximum LTV for each deal they offer - for example, you may only be allowed to borrow 75% of the property's value to get a specific interest rate. In general, the lower your LTV, the lower the mortgage rate, and the cheaper the overall deal.
Of course, you’ll still be able to get a mortgage with a smaller deposit. However, virtually no lenders offer anything more than a 95% LTV mortgage, meaning you need at least a 5% deposit to buy.
You can also calculate the exact LTV for a mortgage you are planning to apply for using our LTV calculator.
Affording your mortgage repayments into the future
A mortgage is a long-term investment, so you need to think about expenses you may have in the future.
Lenders will commonly ask about any upcoming life events that could have a significant impact on your finances, such as if you plan to have children or start a business.
Our mortgage affordability calculator lets you factor in the cost of these future expenses to see what impact they are likely to have.
The effect of interest rates and your LTV
Interest rates will play a deciding role in how much you can borrow. Not only will lenders look at what you can afford to repay at current interest rates, they will also 'stress test' to see what you could pay if rates increased.
In general, lenders will check to see if you could withstand at least a three percentage point rise in rates.
If you have a fixed rate, future interest rate changes are unlikely to affect you. However, if you have variable-rate mortgage, the interest rate on your monthly repayments will fluctuate throughout the length of your term.
While the Bank of England base rate is at a historic low, this is unlikely to be the case during your full mortgage term.
Our calculator allows you to factor in rate changes when you're working out what you can afford.
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 situation 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.
- Last updated: May 2017
- Updated by: Marie Kemplay