It won’t surprise you to know that perhaps the most common question me and my team members are asking is,” How much can I borrow?”
This makes sense. After all, it is not easy to go house hunting if you don’t know how much exactly you can spend and what is your budget slot.
We’re doing lots of exciting work at the moment to bring you some really helpful tools to speed up this process. Meaning that soon you will be able to pop on to our website and get a very accurate idea of what you can borrow. And this will be coming live from the actual lenders, so there won’t be any questions in your head as to the reliability of the figures you are told. But I thought it might be of help to share some top tips (actually it is probably more of just sensible advice and background information on how lenders would work out affordability) so you can understand how much you can borrow, and if needed, increase the amount as high as it can go.
5 tips to increase what you can borrow on your mortgage
1.Increase your Deposit
It might sound odd and absurd to suggest that to borrow more you will have to put more of your own money in. But there is a logic to this, it is common for lenders to lend 4.75 times your annual income. However, if you are putting down 5 per cent, often lenders will limit the amount they are lending you to 4.5 times of your annual income. I can understand that it is not always easy and convenient to increase your initial deposit, but if you are in the position to do so do consider increasing the amount you put in and subsequently increasing the amount you can borrow. Here is a tip, We have our own mortgage calculator. Try it. It’s the best on the market and you get an instant quote from a real lender with zero credit checks.
2. Look at a longer-term mortgage
Let me qualify this first. I know that according to Mathematics the longer you have a debt the more expensive it becomes for you. But bear with me here and try to patiently understand me. A good mortgage advisor will make sure that the amount you are borrowing is affordable and can be repaid by the time you retire from your job- if that is your goal. But quite often, when you are starting, the priority is being able to borrow as much as you can and you are less focused on what will happen in the long term i.e. 25, 30 or even 40 years. In cases like this, it can sometimes make sense and is convenient to apply for a mortgage with a longer-term than you had originally planned, and then when your income increases as your career or business progress, you can reduce the term at the time of remortgaging.
3. Keep an eye on your credit file
We can help our customers in many unique situations. Some of them come to us because they have had previous issues with credit, their credit file and score may be less than so-called perfect. And that is completely normal and fine- it happens. But the result of this can sometimes mean that a lender will only lend you up to 70 or 75 per cent of the value of the property you are willing to buy because, well, you will be considered a risky customer. The better your credit file, the safer you will be considered. And resultantly, you will have greater chances of getting more money.
4. Prove it, prove it, prove it
This is a biggie. Just because you are getting money coming in, it does not mean the lender will accept it as a part of your “usable income”. For example, child maintenance payments, for the most part, need to be evidenced by either the court order or at least six months of continuous payments into the bank account where you can show your statements. Incomes such as cash from relatives or a friend who pays you to sleep in your spare room will not be accepted as they are not considered reliable, are more often difficult to be proved.
If you are self-employed make sure you declare your income. Now, we are not tax advisors, so treat this with a pinch of salt and speak to your accountant as well. But when it comes to borrowing money lenders want to know that you have the income to repay the loan. And they won’t take your word for it. They are going to look at your company’s accounts, your bank account and your tax return. We appreciate you being as tax efficient as you can be. But you need to be able to demonstrate how much you earn openly, usually through HMRC or your accountant. Cash in hand might be great at times, but think long term about how you present your finances. It surely makes a difference and doesn’t forget that the first impression surely does make a lot of impact so hire a good accountant who will be able to talk you through about how to balance both needs.
5. Consider different mortgage products, and let your advisors do the shopping around
Not all lenders are the same. Some take a lot of different factors into consideration when it comes to lending money. One key point is that some lenders will lend you more money if you are prepared to have your mortgage rate fixed for five years, instead of 2. This will give the lender more security and stability, and therefore he may be willing to lend you more money. Your advisor will be able to tell you which lenders are they and compare the rates for you.
How can a mortgage broker help you?
A mortgage broker acts as a middle man between you and your potential lenders. The broker’s job is to compare the mortgage offered by different lenders on your behalf and to find interest rates that fit your needs. Mortgage lenders usually have a stable of lenders with whom they work, these lenders help to make your life easier. A mortgage broker should be hired if you want to find access to the home loans you are not readily advertised to.
A mortgage broker is likely to save your money, as they have access to thousands of lenders or have an exclusive deal with a specific lender. Either way, they help you to save money by probably setting better rates with a mortgage broker than without him. Pricing with a mortgage broker can just be as competitive as a bank, as long as the broker does not take too much off the top. Furthermore, wholesale rates can be a lot cheaper than the retail rates you will get with banks, meaning a lower monthly mortgage payment.
What is considered low income for a mortgage?
There is no set “minimum” income for any mortgage. However, you are likely to get more mortgages when you have a higher income. Moreover, just having a high income would not guarantee you to have an increased borrowing power. To increase your borrowing power you must pay all your debts off. As your lender will look at how much money you already owe and will assess you accordingly.
In addition to this, you should try to get a pay rise that the lender can see and see the potential of growth in you. You may also want to decrease your expenses. These steps help to persuade the lender to see your promising future and not be worried about the risk of losing his money.
I see around that people often relate the amount of income with the amount of money you can borrow. There is no denial of the fact that income is a factor in getting a higher mortgage but it is not the only factor. There are other influencing factors too as mentioned above. So, you don’t have to lose hope if you are currently not earning much, you still have chances of getting a higher mortgage.
How do I know if I can afford a bigger mortgage?
To calculate if you can afford a bigger mortgage or not, a good thumb rule is using the 28 per cent and 36 per cent rule. It states that you should not spend more than 28 per cent of your gross income on home related costs and 36 per cent on the total debts, including mortgage. You can easily analyze your gross income and calculate if you can afford a bigger mortgage, not only this you can get an estimated figure of how big your mortgage can go.
Can I get a mortgage without a deposit?
Most mortgage lenders will require a minimum deposit of 5 to 10 per cent; however, there are a few lenders out there who offer 100 per cent mortgages on shared ownership properties, meaning that you may be eligible for a mortgage with no deposit at all. Things have changed after Coronavirus and lenders have started accepting deposits of at least 10 per cent, this means that it will not be even more difficult for you to find lenders willing to mortgage with no deposit.