Being a first time buyer, or purchasing your next pad, is all fun and games until you fall in love with a home you can’t afford on paper.
To avoid that from happening, it’s well worth finding out how much you can borrow before letting the property search commence.
“You wouldn’t buy something in the shops without looking at the price tag,” mortgage adviser Jo Jingree, director of Mortgage Confidence says. “And the same goes for buying a home. So, to get a rough guide of what you can afford, that’s where mortgage calculators — like the one we’ve just added to our site — come into their own.”
These handy online tools help you estimate your monthly mortgage payments and how much you can afford to borrow.
So, how does a mortgage calculator work?
Essentially a mortgage calculator asks you a handful of questions to ‘better understand’ you and your spending habits. For example, a mortgage calculator might ask you:
- What type of mortgage you’re looking for
- Whether you have any adverse credit
- Where the property is
- The price of the property
- How much you’re looking for borrow
- The term of your mortgage
- How many mortgage applicants there are
- Your annual income
The online tool then scours the internet to find the most suitable mortgage options for you.
“But just to be clear, the calculator is a starting point and it’s only as accurate as the information you give,” Jo explains. “A mortgage calculator shouldn’t therefore replace mortgage advice — it’s there to aid in the initial research process. I would always recommend speaking to a mortgage adviser to get a more accurate guide and help you navigate the ever-changing mortgage market.”
How does mortgage affordability work?
In the mortgage world, you’ll often hear the word ‘affordability’ thrown about. That’s because, when buying a home or remortgaging, unless you’re taking out a 100% mortgage, you’ll need to put down a percentage of the cost of the property value. For example, this might be 5%, 10% or 20%. To make up the rest, you’ll need a mortgage.
Quite a few factors influence how much you can borrow. Of course how much you earn is a major part of the affordability criteria. But lenders will also take into account:
- Debts
- Personal loans
- Student debts
- Pension deductions
- How your income is made up
- How many people are on the mortgage
- Your credit score
- The mortgage term
- Interest rates
“This might sound invasive,” Jo says. “But lenders have to do their due diligence. Lenders take a deep dive into your finances to make sure you can afford to pay back your monthly repayments. Not only does this protect them, it protects you!”.
How do lenders calculate mortgage affordability?
Every lender calculates mortgage affordability differently. “Traditionally speaking, lenders used to multiply incomes by around 4 or 5 to work out how much a person could ‘afford’,” Jo explains. “But that was until mortgage calculators were introduced, as lenders soon realised that every mortgage applicant is unique.”
For example, on paper you might be on the same £30,000 income as the person next door. But if you have kids or debts, this will impact how much you can afford to pay back each month.
“Therefore, lenders now take a much more holistic approach to mortgage applications,” Jo adds.
The good news
Most banks and building societies offer mortgages for first time buyers, those moving home and those remortgaging. But there are mortgage lending companies who offer specialist mortgages for the self-employed and/or credit impaired. “So there are options out there,” Jo says. “It’s all about helping you find the most suitable mortgage for your needs and circumstances.”
Try out our mortgage calculator today (you’ll need to scroll down to get an instant quote). Or speak to award-winning mortgage adviser Jo, who has more than 20 years’ experience in the industry. We offer a no obligation 30-minute consultation to help you find out how much you can borrow. So get in touch.
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate it will be £399. Your home may be repossessed if you do not keep up repayments on your mortgage.
Please be aware that by clicking on to some of the above links you are leaving the Mortgage Confidence Ltd website. Please note that Mortgage Confidence Ltd nor HL Partnership Limited are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.