Can I afford to buy a home in the UK? Working out how much you can borrow

Buying a property in the UK is a big step, both financially and emotionally, and one of the key questions is always: "Can I afford it?" The answer depends on many factors, and your borrowing capacity is the starting point for working out what kind of mortgage you can expect. In this article, we look at what borrowing capacity means in the UK, how it is calculated and how you can improve your chances of getting a mortgage.

What is borrowing capacity?

Your borrowing capacity is the maximum amount a lender is prepared to lend you, based on your financial situation and credit history. In the UK, it is worked out slightly differently from in Poland, as lenders here look at factors such as:

• Regular incomeLenders assess how stable your income is and how much you earn, to judge whether you will be able to keep up your repayments.
• Credit historyIf you have had loans, credit cards or contracts such as a mobile phone contract, lenders will check whether you have paid them on time. A good credit history significantly increases how much you can borrow.
• Other commitmentsLenders look at your existing commitments, such as loans, credit cards and monthly outgoings, to get a fuller picture of your finances.
• DepositIn the UK, you will usually need a deposit of at least 5–10% of the property's value, but a larger deposit reduces the size of your mortgage and the lender's risk, which can lead to better terms.

How do we work out the maximum you can borrow?

Every case is individual, but the typical approach lenders use is based on an income multiple. As a rule, lenders are prepared to lend 4–5 times your household's annual income. For someone earning £30,000 a year, this could mean being able to borrow around £120,000–£150,000.

However, how much you can borrow also depends on whether:

• you are applying on your own or jointly,
• you have savings or other assets to fall back on,
• you are employed on a permanent contract or self-employed.

For example, self-employed people often face more paperwork and need to give the lender fuller information about their income. In these cases, you may need to provide your tax returns for the last two or three years.

How can you improve your borrowing capacity?

If you can't currently borrow enough, there are several ways to improve your position:

1. Build your credit historyPay your credit cards on time and avoid late payments on your bills. It's also worth making sure you don't use too much of your credit card limit.
2. Reduce your debtsIf you have other loans or credit, paying them off before you apply for a mortgage can improve your borrowing capacity.
3. Increase your depositThe bigger your deposit, the less of a risk you are as a borrower, which often means better mortgage deals.
4. Save regularlyHaving savings doesn't just add to your deposit; it also helps lenders see you in a positive light.
5. Keep your employment stableStable employment, ideally on a permanent contract, is one of the main things lenders consider when assessing how much you can borrow.

How can an adviser help?

Working with a mortgage adviser gives you access to in-depth knowledge of the market and support through what can be a complicated application process. An adviser can help you:

• work out the maximum amount you can borrow based on your circumstances,
• understand the differences between lenders' deals,
• improve your borrowing capacity with practical tips,
• access exclusive mortgage deals that often aren't available through standard channels.

Wondering what kind of property you can afford? Get in touch with us.

Find out how much you could borrow and what your financing options are, so you can make your dream of owning a home in the UK a reality.

infoThink carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.