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What mortgage can I afford?

Your home may be repossessed if you do not keep up repayments on your mortgage

It’s not just about how much you can borrow

It’s often the first question that people ask: ‘How much could I get a mortgage for’?[1] When you decide you want to buy a house it’s important to know how much you can afford to spend. There are many things to consider before you can apply for a mortgage. You can have a look at our online mortgage calculator to help you estimate your monthly repayments.

It’s based on your salary

Companies offering you a mortgage will go through a series of affordability tests. These are designed to make sure that you can meet your repayments on your mortgage. Most lenders in the UK will offer you a multiple of your salary as your mortgage, and other factors will be taken into account as well.

Start smart

There are steps you can take to improve your chances of being approved. You have to demonstrate that you’re a responsible person in control of your finances. They’ll look at any outstanding loans you are repaying and also how much borrowing you have on credit cards. If you can afford to repay any of these before you apply for your mortgage it can be worth doing.

Get everything in order

Lenders are now taking a closer look at people’s spending. They may request up to six months of bank statements, along with other details of expenditure, such as utility bills, council tax bills and maintenance costs. And you could be asked to provide information on childcare, grocery and travel cost spending. The lender is trying to build up a picture of your finances to make sure they don’t lend you more than you can afford to repay.

How’s your credit score?

There are things you can do to make yourself a more attractive prospect to mortgage lenders. You should always try to make sure your credit score is as strong as it can possibly be. Our article ‘Understanding your credit score’ can help you with this.

Interest rate changes

You should be aware of what a rise in interest rates will do to your repayments. Lenders will consider how you can afford to repay a mortgage should interest rates increase.

When things change

You also need to make sure you know what you’ll do if your circumstances change. If you lose your job, or have your hours cut or have any other material change that can affect your ability to repay your mortgage, before you agree the mortgage, you have to inform your potential lender. So it’s best to think ahead and have a plan for what to do. You can learn more with our article on ‘What to do if your circumstances change’.

The deposit makes a big difference

The size of deposit you can offer will also have an impact on what you can afford and also the rate you’re offered. With some lenders the minimum you will need is 5% of the property value. But the bigger deposit you can provide the better rate you will be likely to receive. You can look at our ‘Saving for a deposit’ article to see how much you should be aiming to save.

Make sure it’s affordable for you

It can seem that an affordability test is a tricky hurdle to get past. But lenders are just trying to help you make sure you don’t overstretch yourself. In the long run it’s a sensible way to do things. Do your research and you’ll be able to understand the process and make sure you give yourself the best chance of getting the mortgage you want.

Sources:
  1. Google search term, May 2015

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