How much can I borrow for a mortgage?

A common starting point for mortgage borrowing is around four to four and a half times your annual income. That can give you a rough idea of what might be possible, but it is not how a lender reaches its final decision and it is not necessarily the amount that will make sense for you.

Lenders also look at your regular spending, existing debts, dependants, deposit, credit history and the likely monthly mortgage payment. If you are buying with somebody else, both incomes and both sets of financial commitments will usually be considered. MoneyHelper says most people are offered less than four and a half times income, although higher multiples can be available in some circumstances.

If you earn £40,000, using four to four and a half times income gives you a rough borrowing range of £160,000 to £180,000. A lender may ultimately offer more or less than that once it has looked at the rest of your finances.

And even if £180,000 is available to you, that does not necessarily mean borrowing the full amount will be the right fit for your budget.

The lender’s number and your number are not necessarily the same

A lender is trying to establish whether a mortgage is affordable under its lending criteria. It will look at your income and expenditure and consider whether you are likely to be able to maintain the repayments. FCA rules also require lenders to take certain future changes into account where they are already known or reasonably expected.

That is an important protection, but a lender’s affordability assessment is still different from deciding how comfortable that mortgage would feel within your own finances.

Imagine two households are both able to borrow £300,000 after going through a lender’s affordability checks. Both can meet the proposed repayments, but they may still feel very differently about taking on the full amount.

One household may be happy with the amount left each month after the mortgage is paid. The other may want to keep more room for saving, holidays, home repairs or plans that are not fully reflected in the lender’s calculation.

In both cases the mortgage may be affordable according to the lender. The difference is how much flexibility each household wants to keep once the payment has been made.

This is why the maximum mortgage available to you is useful information, but it is a poor target on its own. A lender can assess whether it is prepared to lend the money. You still need to understand what your finances would look like once you start repaying it.

A mortgage can fit into an affordability calculation and still leave your own budget feeling uncomfortably tight.

Look at what the mortgage payment would replace

It is easy to compare a new mortgage payment with your current rent or mortgage and look only at the difference.

Suppose moving to the home you want would increase your housing costs by £350 a month.

The obvious question is whether you have another £350 available.

A better place to start is to look at what currently happens to that money.

Perhaps £200 a month is going into savings and £150 is money you normally have available for holidays, meals out or other things you enjoy. In that case, the new mortgage payment does fit within your income, but only because something else stops happening.

That does not make the mortgage unaffordable. It makes the trade-off visible.

You might be completely comfortable saving £200 less each month because the home matters more to you. You might decide that losing all of the spare room in your budget would make the move feel too tight. Or you might discover that the payment works today but would become difficult if another cost you already expect arrives next year.

This is where your existing spending becomes more useful than a generic affordability percentage.

If you know what your life actually costs, you can see what needs to change when the mortgage payment changes.

MoneyAngel’s Budget is designed around that idea. It starts with reviewed spending and allows the forward budget to be adjusted rather than assuming the previous 12 months will simply repeat themselves. That makes it possible to look at a higher housing cost in the context of the spending you already have, rather than treating the mortgage as a separate number.

The question becomes less about whether £350 exists somewhere in the budget and more about whether you are comfortable with where it would come from.

Your deposit creates a trade-off too

A larger deposit normally means borrowing less. It also reduces the loan to value ratio, which can affect the mortgage products and rates available to you.

That makes putting as much as possible into the deposit sound like an obvious choice.

It is not always that simple.

Imagine you have £50,000 available before buying.

Putting the full £50,000 into the property might reduce the mortgage and perhaps improve the range of deals available to you.

But buying a home comes with other costs. There may be legal fees, surveys, mortgage fees, moving costs, property tax where applicable, furniture or work that needs doing shortly after you move.

There is also the question of what happens after completion.

If almost all of your accessible savings are now tied up in the property, an unexpected repair has to be funded from somewhere else. The mortgage might be smaller, while the rest of your finances have become less resilient.

Using £40,000 as a deposit and keeping £10,000 available would create a different position. You would need a larger mortgage, and the rate or monthly payment might be different, but you would still have money available outside the property.

Neither version is automatically better.

The useful comparison is not simply £50,000 deposit versus £40,000 deposit. It is the mortgage cost, the deal available, the cash left afterwards and what that remaining money needs to protect you from or help you do.

Buying a house converts a large amount of accessible money into equity in a property. That is worth remembering when deciding how much of your savings to put in.

A longer mortgage term changes more than the monthly payment

The length of the mortgage can also make a large difference to what appears affordable.

Spreading the same mortgage over more years usually lowers the monthly repayment. The trade-off is that interest is normally being paid for longer, which increases the total cost of borrowing.

That is the standard answer, but there is another part to consider.

The lower monthly payment may leave more room elsewhere in your finances.

Suppose a longer term reduces the mortgage payment by £200 a month. The benefit is not just that the mortgage is easier to pay. It depends on what happens to that £200.

For one household, it may simply become additional spending.

For another, it could mean they can continue building emergency savings, keep contributing towards another important goal or manage a period of expensive childcare without relying on savings every month.

That does not mean the longer mortgage is better. The extra interest still matters.

It means the decision is not simply “lower monthly payment versus lower total interest”. There is also a question about what the extra room in the monthly budget allows you to do.

The reverse is true as well. A shorter term might look attractive because the mortgage is cleared sooner and less interest is paid overall. If the higher payment leaves the household with almost no spare capacity each month, that benefit comes with a cost elsewhere.

Mortgage terms can run for decades, so the monthly payment and the total cost both matter.

The mortgage may last longer than your current version of life

One of the limitations of any affordability calculation is that it begins with what is known today.

A 30-year mortgage could still be running in 2056, a lot can happen between now and then.

Children may arrive and childcare costs may increase. Somebody might reduce their working hours. Car finance could finish. Earnings may rise. A student loan deduction may eventually disappear. Retirement could come into view.

Some future changes that are already known must form part of a lender’s affordability assessment. FCA rules specifically refer to likely future changes in income and expenditure, including retirement and known redundancy.

But no lender can forecast your entire life.

That is why it is worth thinking beyond whether today’s income supports today’s mortgage payment.

If you already know that one person hopes to take a career break in three years, that matters to your own assessment even if the plan is still too uncertain to determine what a lender will offer.

The same applies if children are likely to change your household costs, if a large financial goal is approaching, or if the mortgage would run well into retirement.

You do not need to predict everything correctly. You are looking for obvious points where today’s comfortable budget could become tomorrow’s tight one.

A mortgage that only works while both incomes remain at their current level and nothing else expensive happens gives you a very different amount of flexibility from one that still leaves some room when life changes.

How much can you borrow?

The only way to know what a particular lender is prepared to offer is to go through its assessment. An agreement in principle can give you a more relevant indication based on some information about your income, spending and credit history, but it is still not a final mortgage offer. The lender will carry out further checks and will also need to be satisfied with the property.

For early planning, an income multiple is useful for getting your bearings. Your deposit then helps indicate what property price might be within reach.

But once you have that rough number, there is another calculation worth doing.

Take the mortgage payment you are considering and put it into the finances you already have.

Look at what is left.

Would you still have room for normal unexpected costs? What happens to your savings? Do the other things you are working towards still look realistic? If your circumstances changed in a way you can already see coming, would the mortgage still feel manageable?

You may find that the amount a lender is prepared to offer fits comfortably.

You may find that borrowing less gives you a financial life you prefer.

Both are useful answers.

MoneyAngel does not calculate how much a mortgage lender will offer you, and it does not provide mortgage advice. What it can help you understand is the part that a borrowing multiple cannot answer. Your Budget shows what your current life costs, while your wider financial picture can help you see what a larger housing payment would leave available for everything else.

A lender can tell you how much it may be prepared to lend. What matters next is understanding how that level of borrowing would fit into the rest of your finances.

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