How do I work out how much I can borrow for a mortgage?
Lenders nowadays generally use affordability calculators rather than the older, and more straightforward, income multipliers. Unfortunately they all have different methods of arriving at how much they think you can afford. To give you an initial idea try lenders websites, which will often give you an affordability guide - for example, there is currently a guide on www.santander.co.uk, on www.halifax.co.uk ( click on mortgages, and then mortgage calculators). But don't rely fully on the results, as the calculators don't ask all relevant questions - and one question they don't deal with is your personal credit history. An independent adviser will ask you deeper questions to give you a more accurate figure, though at the end of the day the underwriters (who are the people that make the final decision about your mortgage application) are free to disregard the calculated figure and can reduce or indeed increase the figure.
As an even rougher guide, expect between about 3.5 and 4.5 times your usable income. This will be all of your basic annual earned income and annual pension income, plus in some cases certain government benefits, plus half of any regular bonus.
Now SUBTRACT from this the following: the annual payments made to any loans, annual mortgage payments that will be retained (self-funding buy to let properties are ignored), and about 60% of outstanding credit card balances (this is worked out as costing you about 5% per month, hence 60% per year!) It follows that card debt has a huge effect on what you can borrow. If you repay the card debt (even by adding it to the loan) you will be able to borrow more. Check this out for yourself with one of the affordability calculators. | 12.10.10 @ 10:15