Use our mortgage calculator to work out how much you can borrow even with no deposit or bad credit. Explore our guide to learn how much you can afford based on your financial situation. Plus, understand how lenders assess your affordability and decide how much you can borrow.
How much you can borrow for a mortgage is almost entirely based on your income, debt and outgoings.
Generally mortgage lenders allow you to borrow a maximum of four and a half times your income. They always conduct affordability checks before loaning you any money to ensure you can meet the monthly repayments.
Some allow you to borrow five times your combined total income, but this is rare. You may only be able to get the maximum amount if you already have a current account with the lender, or you have a very large deposit.
Comparing the loan amount to your income is known as the “loan-to-income” ratio.
How much mortgage you can borrow and how much mortgage you can afford are slightly different.
To determine how much mortgage you can afford to pay, lenders may use a version of the following calculation:
4.5 times total income of all applicants - 2.5 times total debt
How many times your salary you can borrow ultimately depends on your individual circumstances and the lender.
Since the 2008 financial crash, mortgage lenders are far more strict about who they lend to. They judge your affordability based on an in-depth discovery of your income, all your outgoings and your total debt. They also scrutinise your credit file.
Lenders also want to know you could afford the repayments should the interest rates increase by 4% above the Bank of England base rate. This is known as stress testing.
Use the how much can I borrow mortgage calculator above for an estimation on how big a mortgage you can get.
To get a more accurate maximum mortgage figure, apply for an agreement in principle (AIP). An AIP is not the same as a formal mortgage offer. It is a theoretical figure of what a lender may be willing to lend you.
Most estate agents will not take an offer seriously without an AIP. You can secure one quickly online or via a mortgage broker.
If you have bad credit you may still be able to get a mortgage, but it will be harder to find a lender willing to give you a loan.
You will likely need a larger deposit if you have a history of bad credit, and the best mortgage rates won't be available to you.
Generally the best way to find a bad credit mortgage is to talk to a mortgage broker.
In most cases, you will need a minimum of a 5% deposit to secure a mortgage, meaning you’ll need a 95% mortgage loan. The size of the loan versus the property value is referred to as loan-to-value ratio, or LTV.
If you are able to save more, for instance a 10, 15 or 20% deposit, you’ll increase your chances of being accepted for cheaper mortgage products. Lower interest rates (and small set-up fees) equal cheaper mortgages.
If you have no deposit - otherwise known as 100% LTV - you can still get a mortgage, but your options will be much more limited than if you had a deposit of 5, 10 or 15%.
No-deposit mortgages generally have a much higher interest rate, which means you'll pay a lot more in interest over the long term.
While 100% LTV mortgages are available for first-time buyers, you can find better and cheaper products if you can save up a deposit of at least 10%.
Most AIPs only require a soft search on your credit file, which means other lenders will not see it. A real mortgage application will leave a mark on your file that all other lenders will be able to see. Generally, having more marks can count against you because it could suggest you are desperate for credit. Being turned down for a loan product will have a negative impact on your credit file.
Mortgage lenders will review your credit file in depth to make absolutely sure you could afford the monthly repayments of the mortgage you’ve applied for. Each lender has their own scoring system – it does not see the score you do, that’s just for you – and may check one or more of your credit files (from Experian, Equifax or TransUnion), so it is vital you check all three before you apply for a mortgage.
Lenders want to know how stable an investment you are by looking at how long you’ve been in a job, lived at your current address and had a bank account.
On application, mortgage lenders will look at your salary, guaranteed bonuses, pension, investments and any other income you have. You’ll need to prove your income with payslips and bank statements. If you are self-employed, there are some additional hoops to jump through (see below for more details).
Lenders will also closely examine your outgoings. More than just your rent (or current mortgage repayments if you’re remortgaging), which is likely your biggest monthly expense, they’ll look at other regular bills (credit cards, mobile phone, broadband, utilities) as well as your living expenses.
If you are down to £0 the day before pay day, or worse still, you’re in your overdraft, and your bank statements show you eat at restaurants four times a week, you could find it very hard to get a mortgage as it will look like you cannot manage your money.
For that reason, it’s worth trying to get your finances in order at least six months before you apply for a mortgage.
You might be able to afford the monthly payments if you secure a mortgage with a low interest rate, but what would happen if rates increased to 3% above the lender’s standard variable rate (SVR)? The average SVR today is 5.11% – so you would be stress-tested on an interest rate of around 8%. This is known as “stress testing”.
Could you afford the repayments should your personal circumstances change? That is not just what a lender considers, but something you will need to ask yourself too.
Having enough savings to cover three months of mortgage payments could really be worth your while in case your circumstances change – for instance, if you lose your current job.
Lenders may limit the amount you can borrow based on their findings.
It can be tempting to borrow your maximum mortgage amount and buy the most expensive property you can afford – but that may not be the right thing to do as it leaves you little wiggle room if rates go up or your income goes down…or both!
To begin with, one of the easiest ways to lower your monthly repayments is to borrow less money, giving you a lower LTV. If you have £20,000 as a deposit, that’s only 5% of a £400,000 property, but 10% of a cheaper £200,000 property.
The other thing to consider is that mortgage products are usually arranged in a tiered fashion, with a lower interest rate offered every time your LTV goes down by 5%. So, 95% LTV mortgages generally have higher interest rates than 90% LTV mortgages, which have higher rates than 85% LTV mortgages and so on.
If you’re looking at buying a property and your LTV would be 87%, you might consider raising a slightly larger deposit to push yourself over the 85% LTV threshold, otherwise you’d be stuck at 90%. Likewise, it might be worth looking at a slightly cheaper property, where the same size deposit would provide a better LTV and allow you to keep some money aside.
Borrowing the maximum amount possible could leave you “house poor” – where you own a house, but you have no funds left to pay for everyday stuff without going into debt.
If you’re remortgaging your home, the exact same rule of thumb applies – you want to aim for the lowest LTV possible – but instead of raising a big deposit you get to use the equity in your home.
For example: you raised a deposit of £40,000 and borrowed £360,000 to buy a home valued at £400,000 (an LTV of 90%). Now the five-year fixed-rate deal deal has ended, you want to remortgage to a new fixed-rate mortgage. You’ve since paid off £40,000 from the principal debt – so you owe the lender £320,000 – and your home has gone up in value to £420,000.
Assuming you want to get a new mortgage for the same amount – £320,000, with £100,000 in equity – you would have an LTV of just 76%.
However, a 76% LTV mortgage will most likely have the same rates as an 80% LTV mortgage. To drop to a 75% LTV (and therefore lower the interest rates) you would need to add £5,000. Alternatively, you could try and get a slightly higher valuation for your home, which would help you drop to a 75% LTV.
If you’re remortgaging to unlock money for home improvements or other expenses, try to keep your LTV tier in mind. If you can stay within a lower LTV tier, perhaps by borrowing slightly less, you’ll save a lot more in interest repayments in the long-term.
First things first, you can still get a mortgage if you are self-employed, you’ll just have a few more hoops to jump through than if you were a full-time employee.
Lenders will consider you more of a risk, so you will need to gather together at least two complete tax-years of business accounts and tax returns. Some lenders require that the documentation has been signed by a chartered accountant to prove that the information you’ve provided is reliable.
Your maximum mortgage will then be based on your net profit, not total turnover. The exact calculation will vary from lender to lender, and also on your legal status – self-employed is different from the sole director of a limited company, for example.
Some lenders may base your maximum mortgage on your past trading history, while others might want projections of future customers and income. Organise both, just in case.
If you’re self-employed, speaking to a mortgage broker is pretty much a must. They will know which lenders will most likely accept you, therefore cut the chance of a credit score-damaging rejection.
Edited by: Sarah Guershon. Mortgage calculator updated to version 1.1 on June 17, 2019.
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Last updated: 17 June, 2019
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