If you feel that you might be ready to go out and purchase your first home – congratulations! Or perhaps you’re already a homeowner and you are looking to move onto the next property in your homeownership journey. Whatever your reason for reading this blog, if you’re ready to start looking for a property, you’ll find some useful information below.
But how can you start house hunting if you don’t know what you can afford? Before you get carried away on Right Move, it’s important to speak to a mortgage adviser. They’ll help you find out how much you might be able to borrow for a mortgage and therefore how much you might be able to spend on a property.
To give you an idea of how much you might realistically be able to borrow for a mortgage, we’re going to explain a little about how lenders calculate affordability, how much your mortgage might cost and what your next steps should be.
Speak to a mortgage adviser and broker
We would always suggest that the first step in this process should be to speak to a mortgage adviser and broker, such as us here at Mortgage Light. We will be able to guide you on the level of mortgage borrowing that you may be able to successfully apply for. This will give you an idea of what the monthly repayments are likely to be.
This should save you from applying for mortgages that you can’t afford or won’t qualify for. This can result in your application getting rejected. Bear in mind that evidence of rejected mortgage applications can affect your credit rating. This might hinder you from obtaining the mortgage deals that you do qualify for. It’s better to try and get it right the first time with the help of an experienced adviser.
Our advisers will take a look at your current income and your expected level of expenditure. That, together with the amount of the cash deposit you are able to provide, will help us work out what size of mortgage borrowing you might qualify for and therefore the price range of property you might consider looking at. We will also be able to give you an idea of the other costs you are going to need to cover. These can include valuation fees, legal fees, stamp duty and possibly lender’s facility fees.
Once we have guided you through all of this and you’ve found the property you wish to purchase, we will scan the mortgage market and make recommendations to you on the most appropriate mortgage deals. After discussing these recommendations, we’ll work with you to complete your mortgage application. We’ll then present it to the most appropriate lender. We’ll look for one which we feel gives your application the best chance of being approved.
Find out more – ‘How do I apply for a mortgage?’
How do mortgage lenders assess affordability?
When you apply for a mortgage, the first thing a mortgage lender will do is assess whether your application falls within their basic mortgage affordability criteria. Most mortgage lenders base the maximum amount they are willing to lend on a simple multiple of the applicant’s current basic annual income.
As a general rule, you can expect to be offered a mortgage up to four and a half times your annual salary. In some cases, this can be stretched higher. This is only a guide, however, and some lenders may take a more cautious approach and adopt a lower multiple. Some may be willing to go a little higher where they feel circumstances justify it. This means that if you earn £30,000 per year, you might reasonably expect to secure a mortgage of up to £135,000.
If, however, you make a joint application with your partner who also earns £30,000 per year, then this could potentially take you up to a joint mortgage of £270,000. This could be lower if you have loans or independents.
Assuming you meet this initial income multiple criteria, your application will then need to pass some further basic checks before being looked at in any detail. The next thing lenders will check is your credit history. All lenders subscribe to one or more of the major credit reference agencies.
These agencies collect detailed information about everyone’s personal credit history. From this information, they allocate everyone a personal credit score. The higher the score, the lower the credit risk you represent. The lower the score, the higher the risk you’re considered. Each lender will set a minimum score that all applicants must achieve before they will consider lending you money.
Find out more – ‘Am I eligible for a mortgage?’
What will my mortgage cost?
So, you know how much money you might be able to borrow for a mortgage. You know the budget you’ll be considering for your future property. But what does this actually mean in terms of your monthly repayments? This will depend on a few things:
- The amount of borrowing you will need
- The length of the mortgage term you choose
- The interest rate offered to you
Once you have found the property you want, let your mortgage adviser know. They will search the mortgage market for the most suitable deals available. Then, they will provide an illustration of what the monthly mortgage repayments will look like on different mortgage deals across a few different mortgage terms.
Choosing a shorter mortgage term will mean you’ll pay less interest back overall. However, spreading your borrowing out over a shorter time period will mean you’ll have larger monthly repayments. 35 years has always been considered to be the normal mortgage term. It helps to make those initial mortgage payments more affordable. Lenders are generally reluctant to provide mortgages that extend beyond the applicant’s normal retirement age. This can sometimes limit the mortgage term you are able to apply for.
Getting a mortgage in principle
Before you start house hunting, we usually recommend that you try to obtain a mortgage in principle. This is also known as a Decision in Principle (DIP) or an Agreement in Principal (AIP). It is an indication from a lender that you meet their basic lending criteria. It also gives you an idea of how much they may be willing for you to borrow for a mortgage. This ‘offer’ is based upon an initial and very basic assessment of your information. This is usually submitted by your mortgage adviser and broker.
Having a mortgage in principle under your belt before house hunting shows estate agents and sellers that you are a serious buyer. It shows that you are actually in a strong position to make an offer on a property. A mortgage in principle is not compulsory. However, many estate agents and sellers will refuse to let you view a property unless you have one.
A mortgage in principle is usually valid for between 30 and 90 days from issue. The most important thing to remember is that it is not a mortgage offer. It is only based upon that very basic assessment of your information. It’s not in any way a commitment on the part of the issuer to eventually provide a mortgage to you once you submit a formal application. If you fail to meet the lender’s criteria for any reason during their assessment process, they may well reject your application.
Ultimately, if you are wondering how much money you can borrow for a mortgage, we recommend that you speak to a mortgage adviser and broker, such as us here at Mortgage Light. It’s the first step on the road to getting a mortgage.