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How much can I borrow?

Before applying for a mortgage, you need to work out how much you can afford to borrow. This page explains how lenders calculate the amount they will lend you, how much of a deposit you'll need and how much your repayments may cost.

How much should I borrow? 

You should be realistic about working out how much you can afford to borrow. You may be tempted to stretch your finances to the limit to get the home you want. But just because a bank or building society agrees to lend you a big sum of money, it doesn't necessarily mean you can afford to pay it back.

It's also important not to take out a mortgage that's bigger than the value of the property you're buying. If the value and price of your home fall, you could end up in 'negative equity', when you owe your mortgage lender more money than your home is worth.

How much can I borrow?

Anyone over the age of 18 can apply for a mortgage. Before a lender will offer you a mortgage they'll look into your income and personal circumstances. 

Buying on your own

If you are buying on your own, a lender will usually allow you to borrow approximately three times your annual income. This amount can be reduced if you have other regular payments to make, such as maintenance payments or credit debts.

Buying with someone else

If you are applying for a joint mortgage, you will probably be able to borrow approximately three times the higher income plus one times the lower income. The amount can be reduced if you have regular payments to make such as child maintenance payments or credit debts.

Buying if you're self-employed

If you're self-employed or have an irregular income, you will usually need to provide the lender with accounts for the last three years. You may need to access a specialist lender through a mortgage broker. You may also have to come up with a larger deposit than someone in regular employment.

Buying if you're on benefits

If you receive income support or pension credit, you may be able to repay the interest on a new mortgage of up to £100,000 through your benefits. This occurs if you take out, or increase, a loan to buy a new home which is better suited to the needs of a disabled person than your current home. Read the page on getting a mortgage if you're disabled or contact Housing Options Scotland to find out more.

Things to consider before you take up an offer

  • Interest rates - allow for the fact that interest rates may increase in the future when deciding if you'll be able to afford the payments.
  • Costs of buying a home - remember the costs involved in buying a home, such as solicitors' fees and mortgage arrangement fees.
  • Changes to your income - your income may decrease in future, for example, if you want to switch to working part-time or start a family.
  • The cost of home ownership - bear in mind all the other expenses involved in owning a home, such as council tax, insurance and maintenance.
  • Fixed rate mortgages - if you take out a mortgage with a low fixed rate, remember that when that fixed rate ends, your monthly payments could go up substantially.

Use the calculators at the Council of Mortgage Lenders or Motley Fool websites to work out what you can afford to pay and how much you will be able to borrow.

How much deposit will I need?

Many banks and building societies won't lend more than between 70 and 95 per cent of the value of the property or of the purchase price, depending on which is lower. If you need to borrow 90 per cent or more, you may have to take out mortgage indemnity guarantee insurance (which could cost several hundred pounds).

If you borrow a high percentage of the property's value you will have higher charges to pay, and if property prices fall in the future, you run a greater risk of getting into negative equity (where the property is worth less than the amount you still owe to the lender).

Remember the 'value' is what the lender's valuer thinks the property is worth, and this may be less than the price you actually pay. For example, if you are bidding £105,000 for a property worth £100,000 and your lender will only lend you 90 per cent of the value (£90,000), you'll need to come up with £15,000 for the deposit. The MoneySavingExpert.com website has a helpful mortgage deposit calculator to help you work out how much you'll need to pay up front. 

When working out how much you can put down as a deposit, don't overlook the other upfront costs of buying, such as solicitor's fees, valuation fees, moving costs etc.

How much will my repayments be?

Your monthly mortgage payments will depend on:

  • the kind of mortgage you have taken out
  • interest rates
  • the length of time you have to pay your mortgage off (the mortgage term).

For more information see our page on repayment options and interest options.

Getting a 'Key Facts' document

If you're given information about a mortgage that is tailored to your circumstances, from a lender or mortgage broker, you should be given a 'Key Facts' document summarising the most important features of the mortgage, including the costs. This document should be clear, easy to understand and allow you to compare costs and terms with other mortgages.

Find out more about Key Facts documents from the Financial Conduct Authority and our page on mortgage information and advice.

What if I can't afford to buy my own home?

If you cannot afford to take on a mortgage for your own home you may also consider shared ownership, which means that you buy part of a property (for example, a quarter or half of the value) and continue to pay rent on the rest. Alternatively, one of the Shared Equity schemes may operate in your area, and you may be eligible to get help with purchasing a home.

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The important points

  • If you buy a property on your own, a lender will usually lend you about three times your income but if you have other payments to make this might be reduced.
  • Self-employed buyers usually need to provide accounts for the last three years and may need a larger deposit than someone in regular employment.
  • Your monthly mortgage payments depend on the kind of mortgage you have, interest rates and how long you take to pay your mortgage off.
  • If you can't afford to buy your own home, you could look into shared ownership or shared equity as ways to own part of your home.

If you're still looking for help, try searching, or find out how to contact us

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