What affects how much you can borrow
Eight things a lender looks at before deciding how much it can lend you.
Planning to buy your dream flat or house in the UK? Before you apply for a mortgage, it's worth knowing what affects how much a lender will let you borrow. Here are the key factors that can shape your chances of getting a mortgage.
1Your credit history
Paying past credit regularly and on time builds lenders' trust. Your credit history has a big influence on your application. It covers previous loans, credit cards and other financial commitments. It's worth looking after, because a good repayment record can improve your chances of a mortgage on better terms.
2How many credit applications you make
Avoid making lots of credit applications in a short space of time. They can count against you, as they suggest financial uncertainty.
3Your age
The length of the mortgage affects the monthly payment. A younger applicant is more likely to get a longer term, which can lower the monthly payment. Younger applicants may also be seen as having more earning potential ahead of them, which helps the assessment.
4Your address history
Lenders look at how settled you are and where you've lived. The address on official ID, such as your driving licence, should match the address on your mortgage application. Moving often can worry a lender, as an applicant who changes address frequently may be seen as a higher risk.
5Steady income and time in work
A stable income improves your chances. The longer you've been in work, the more reliable you look. Lenders pay close attention to how regular your income is, where it comes from, any gaps in employment and the type of employment.
6Debt-to-income ratio
Your debt-to-income ratio (DTI) is a measure lenders use to judge affordability. It compares your monthly commitments (loan payments, credit cards) with your gross monthly income. The lower the ratio, the better your chance of borrowing more. Lenders prefer to lend to people who can keep up repayments without stretching their budget. A commonly used DTI limit is 40–45% (meaning no more than 40–45% of your monthly income goes on repayments).
7The size of your deposit
A bigger deposit can improve your chances of approval. Lenders usually offer better terms to applicants with a larger deposit. The rate for someone with a 5% deposit will be less attractive than for someone who can put down 10% or 15% of the price.
8The right documents
Everything you state in your application has to be backed up by documents. It's important to provide complete and accurate paperwork, as missing or unreliable documents can delay the process or count against you. Before you apply, it's worth speaking to a financial adviser, who can help you prepare your documents and support you through the whole application.
Talk to us
Every situation is different, so it's worth speaking to our experts, who can help you get ready to apply. Get in touch today and make your dream of owning a home come true!
Think 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.