When you’re searching for your next home, having a clear budget is essential. For many prospective buyers, that involves understanding how much you could borrow through a mortgage. Read on to discover three ways to assess your borrowing potential.
Calculate the figure using general guidelines
If you simply want a ballpark figure to whittle down the list of properties you’re interested in viewing, using a general guideline might be a good starting point.
Most UK lenders typically offer up to 4.5 times your annual salary. So, if you earn £50,000 a year, you could borrow £225,000 through a mortgage. Your personal circumstances will affect the mortgage you’re offered, but this simple calculation could give you an idea of what properties might be within your budget.
Apply for a mortgage in principle
A mortgage in principle, also known as an agreement in principle, is a written statement from a lender stating how much they might lend you through a mortgage.
This can be useful when you’re ready to start viewing properties and putting in offers. Indeed, some estate agents may ask to see a mortgage in principle when reviewing your offer.
When assessing your mortgage in principle, lenders will usually only carry out a soft credit check, which isn’t recorded on your credit report. As a result, you may want to apply for a mortgage in principle with several different lenders to compare your options.
When you’re ready to apply for a mortgage, you don’t have to choose a lender you’ve received a mortgage in principle from.
Keep in mind that a mortgage in principle isn’t a guarantee. As the lender may not have carried out a hard credit check, they may change the amount you can borrow or even reject your application when you apply for a mortgage.
Work with a mortgage adviser to gain a clearer picture
While general guidelines and a mortgage in principle can provide a rough estimate of how much you can borrow, a mortgage adviser can give you a far more accurate picture. They will base their estimate on your personal financial circumstances and the criteria used by lenders.
A mortgage adviser will begin by assessing your income, outgoings, credit history, and financial commitments. By taking a detailed look at your finances, they can determine what lenders are likely to offer, rather than relying on broad estimates.
One of the key advantages of using a mortgage adviser is that they understand how different lenders assess affordability. Every mortgage provider has its own rules and calculations, meaning the amount you can borrow may vary significantly from one lender to another.
A mortgage adviser can identify which lenders are best suited to your situation and help maximise your borrowing potential where appropriate. However, it’s still important to note that the outcomes cannot be guaranteed.
Mortgage advisers can also explain how factors such as interest rates and repayment terms affect affordability. This could help you make the decision that’s right for your circumstances. For example, after reviewing this information, you might decide to borrow less than the maximum amount so that your repayments are more manageable.
An adviser could also guide you through the application process, making it less likely to contain errors or missing information that could affect the outcome.
In addition, a mortgage adviser can help you prepare for lender stress tests. Most lenders assess whether you could still afford repayments if interest rates were to rise in the future. Advisers know what lenders look for and may offer practical guidance on improving your financial position before you apply.
A mortgage adviser could provide clarity and reassurance when calculating how much you can borrow by explaining how affordability is calculated and what steps you can take to strengthen your application.
So, working with a mortgage adviser could mean you have a better idea of how much you can borrow and make the process of taking out a mortgage less stressful.
Get in touch
If you’re looking for a mortgage, whether to purchase a new property or remortgage your existing home, we could help. Please get in touch to speak to a member of our team.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
