How much can I borrow? Kenilworth expert explains

Alex Sharp of GAM Home Loan Specialists explains all about how much you can borrow and the factors that determine borrowing limits.
One of the first questions homebuyers ask is: How much can I borrow?
The answer depends on several factors that lenders assess when determining your mortgage eligibility. Understanding these elements can help you plan your home purchase and increase your chances of securing the loan you need.
1. Income and Affordability
Your income is a primary factor in calculating how much you can borrow. Lenders typically offer loans up to 4 to 4.5 times your annual salary, though some may lend more in specific cases.
If you have a joint application, both incomes will be considered, increasing your borrowing potential. Lenders use your gross annual income, they can consider overtime, commission and bonuses.
Each lender has different calculations for using income which is where a Mortgage Adviser can help. FAQ: I will start receiving a bonus this year, can we use this?
In general, no, lenders like to take an average of the last two years received bonuses. But we do have some more flexible lenders.
2. Monthly Outgoings and Debt
Lenders assess your regular expenses, including existing debts, childcare costs, and other financial commitments.
A high level of debt (such as credit cards or loans) can reduce your borrowing capacity, as lenders want to ensure you can comfortably afford repayments.
FAQ: I have significant savings, will the lender take my full financial situation into account?
Unfortunately, no, most lenders stick to using income and expenditure for calculating the amount they will lend.

3. Credit Score and History
Your credit score doesn't affect how much lenders will lend as much as income and expenditure. It is more of a pass or fail for the lender.
4. Deposit Size
A larger deposit can improve your mortgage options. While a 5% deposit is the minimum for many lenders, a 10-20% deposit often unlocks better rates and increases borrowing capacity. The best "affordability", as a rule of thumb, is with a 25% deposit or above. Remember the higher the deposit, then the lower the mortgage rate.
The lower the rate, the lower the monthly payment, then the more affordable the loan is. Therefore, lenders will lend more.
5. Mortgage Affordability Rules
Lenders conduct affordability checks to ensure you can afford repayments if interest rates rise. With recent discussions about relaxing mortgage affordability rules, borrowing limits may change in the near future.
However, we need to remember why the rules are in place, if the rules hadn't been in place for the September 2023 mini budget spike to mortgage interest rates, then many people would have had higher mortgage loans which would then likely have been unaffordable.
So, if one of the first questions homebuyers ask is: How much can I borrow? Then the second question is: What will this cost me per month? If you are asking this question, get in touch.
Need help calculating your mortgage potential? Get in touch for expert advice!
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