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A mortgage is a loan which is taken out to buy property or land. You can apply for a mortgage directly through a bank or building society, or you can contact a mortgage broker to help you find the best deal.
When you apply for a mortgage, lenders will be taking a wide number of factors into account.
Lenders will be interested in your income, as this will help determine whether you can keep up with mortgage repayments.
The size of the deposit you’ll be able to put down will also impact how much you can borrow, and your outgoings such as bills, credit card repayments and insurance will be considered.
Your personal circumstances, and any potential future circumstances, will also be taken into account.
How much can I borrow?
How much money you can borrow depends on your income and your personal circumstances.
But generally the maximum a lender may let you borrow is usually around 4.5 times your income.
The Money Advice Service explains: “In the past, mortgage lenders based the amount you could borrow mainly on a multiple of your income. This is known as the loan-to-income ratio.
“For example, if your annual income was £50,000, you might have been able to borrow three to five times this amount, giving you a mortgage of up to £250,000.
“Now, when you apply for a mortgage, the lender will cap the loan-to-income ratio at four-and-a-half times your income.
“They must also assess what level of monthly payments you can afford, after taking into account various personal and living expenses as well as your income. This is called an affordability assessment.”
When you apply for a mortgage lenders will require proof that you will be able to pay off the amount you borrow, so you may be expected to provide documentation for assessment.
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How can I calculate how much I can borrow?
A lender may be able to give you an estimate of how much you would be able to borrow if you get in touch with them.
A lot of banks also have borrowing calculators on their website, which you can use to estimate how much you can borrow.
To name a few, Santander, Barclays, Natwest, HSBC and Halifax all offer these online calculators.
The Money Advice Service website also has a Mortgage Affordability Calculator HERE which you can use to estimate how much you can afford to borrow.
Online borrowing calculators will only be able to give you an estimate of how much you may be able to borrow.
But the only accurate way of finding out how much you can borrow is when you apply for a mortgage.
Although you can look at mortgages on offer directly through banks and building societies, there are also a number of mortgage comparison sites on the internet which you can use.
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