How much can I borrow?

There is no hard and fast rule that lenders use when it comes to making decisions about how much money you can borrow these days.

All lenders must be able to demonstrate what is described as responsible lending. This basically means that they will not lend you money that you cannot afford the repayments on.

Historically they used fixed income multiples such as 4 x your basic salary for example, but this is no longer the case. Under current rules they assess your financial situation and check the affordability of the loan repayments against your existing monthly income and outgoings. This can lead to two people that earn the same money, but have different financial commitments, being offered different loan amounts. The person with bank loans and car finance for example would be offered a smaller loan than the person with no financial commitments.

The other factor that the lender will take into consideration is the loan to value ratio of the mortgage being applied for. They are more likely to offer the same borrower a higher amount at 60% loan to value than they would at 90% loan to value for example. This whole process is described as credit scoring, and means that you can have an excellent credit record but still be declined for mortgage borrowing because you have used your borrowing power in other areas.

Buy-to-Let Borrowing

Lenders will often apply completely different rules when it comes to a Buy-to-Let mortgage and it seems that just about every lender has a different way of calculating the loan amount allowed. Some lenders will follow the affordability method detailed above, others will determine the amount based purely on the amount of rental income generated by the property, and then there are some that will allow you to mix your personal income and the rental income together. The complexity of these schemes underlines the importance of using an experienced mortgage broker to secure the right funding for you.