MortgageAdvice.co.uk
MORTGAGE BORROWING
YOUR CIRCUMSTANCES
Your financial position
Your income, expenditure, credit commitments and wider financial position.
THE MORTGAGE
The borrowing requested
The amount requested, mortgage term and how the mortgage is structured.
THE PROPERTY
The property being mortgaged
The property value and characteristics relevant to the lender.
LENDER ASSESSMENT
The lender applies its criteria
The lender applies its criteria and decides how much, if anything, it is prepared to lend.
Different lenders can reach different outcomes
Lenders have their own lending criteria, so the amount available can differ between lenders even when the applicant’s circumstances are the same.
AFFORDABILITY
What can affect how much you can borrow?
A lender may consider several parts of your financial position when assessing a mortgage application.
01 · INCOME
Income
How much you earn and how your income is structured can form an important part of the assessment.
02 · REGULAR COMMITMENTS
Regular commitments
Loans, credit commitments, household expenditure and other regular outgoings may affect affordability.
03 · DEPOSIT
Deposit
The amount of deposit can affect how much needs to be borrowed and the loan-to-value of the mortgage.
04 · CREDIT HISTORY
Credit history
A lender may consider your credit history as part of its lending decision.
05 · MORTGAGE TERM
Mortgage term
The proposed mortgage term can affect repayments and the lender’s assessment.
06 · PROPERTY
Property
The property’s value and characteristics can also form part of the lender’s decision.
The factors work together
A lender can consider several parts of an application together rather than using any one factor in isolation. How each factor is assessed can depend on the lender’s criteria and the circumstances of the application.
YOUR INCOME
How might a lender look at your income?
Income is important, but lenders may also consider how that income is earned and whether it meets their criteria.
EMPLOYED
Employed income
Salary and other employment income may be considered, subject to the lender’s criteria.
How different elements of employment income are treated can vary between lenders.
SELF-EMPLOYED
Self-employed income
Lenders may assess income from self-employment or a business using information relevant to their lending criteria.
The approach can depend on the circumstances and the lender’s requirements.
OTHER INCOME
Other income
Some other forms of income may be considered depending on the lender and circumstances.
How particular sources of income are treated can vary between lenders.
Income is only one part of affordability
A higher income does not by itself determine how much a lender will offer. Regular commitments, borrowing, mortgage term and other factors can also affect the assessment.
AFFORDABILITY
Why do your regular commitments matter?
A lender may consider both money coming into the household and regular financial commitments when assessing whether mortgage payments appear affordable.
MONEY COMING IN
Income
Income that meets the lender’s criteria can form part of its assessment of the mortgage application.
MONEY COMMITTED
Regular commitments
Existing borrowing, regular expenditure and other financial commitments may also be relevant to the assessment.
LENDER ASSESSMENT
Mortgage affordability
The lender considers the application using its own affordability model and lending criteria.
What commitments might be relevant?
CREDIT COMMITMENTS
Loans, credit cards and other borrowing may form part of the lender’s assessment.
HOUSEHOLD EXPENDITURE
Regular household and living costs may also be considered.
OTHER FINANCIAL COMMITMENTS
Other ongoing financial obligations may be relevant depending on the circumstances and lender.
Lenders use their own affordability models
The way income, expenditure and financial commitments are assessed can differ between lenders. A lender’s assessment can also take account of other information about the mortgage application and the applicant’s circumstances.
YOUR DEPOSIT
How can your deposit affect mortgage borrowing?
Your deposit affects how much of the property’s purchase price needs to be funded by the mortgage.
It also affects the relationship between the mortgage borrowing and the property’s value, known as loan-to-value.
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What is loan-to-value?
Loan-to-value, often shortened to LTV, compares the amount of mortgage borrowing with the value of the property. It describes the proportion of the property’s value that is being funded by the mortgage.
LOWER PROPORTION BORROWED
DEPOSIT / EQUITY
MORTGAGE BORROWING
A smaller proportion of the property’s value is funded by the mortgage.
HIGHER PROPORTION BORROWED
DEPOSIT / EQUITY
MORTGAGE BORROWING
A larger proportion of the property’s value is funded by the mortgage.
Deposit and affordability are different questions
Having a larger deposit does not automatically mean a lender will offer a particular amount. The lender will still assess the application against its affordability and lending criteria. The amount a lender is prepared to offer can depend on the wider application as well as the deposit and loan-to-value.
MORTGAGE TERM
How can the mortgage term affect borrowing?
The mortgage term is the period over which the borrowing is expected to run. The term can affect the repayments associated with the mortgage and the overall period of borrowing.
SHORTER ←──── MORTGAGE TERM ────→ LONGER
SHORTER TERM
Borrowing over fewer years
A shorter repayment period means the mortgage is expected to be repaid over fewer years.
Repayments
The repayments reflect the shorter period over which the borrowing is being repaid.
Overall borrowing period
The mortgage is expected to remain outstanding for a shorter period, assuming it runs as planned.
LONGER TERM
Borrowing over more years
A longer repayment period spreads the mortgage borrowing over more years.
Repayments
Spreading the borrowing over a longer period can affect the level of the repayments.
Overall borrowing period
The mortgage may remain outstanding for longer and interest may be paid over a longer period.
The mortgage term is not considered in isolation
The term available can depend on the lender, the mortgage and the applicant’s circumstances. Changing the mortgage term can affect repayments and the overall period over which interest may be paid.
CREDIT HISTORY
How can your credit history affect a mortgage application?
A lender may use information about your credit history when deciding whether it is prepared to offer a mortgage.
Credit history is one part of a wider assessment that can also consider your income, financial commitments, the mortgage and the property.
YOUR CREDIT HISTORY
How credit has been managed
Information about how credit accounts and borrowing have been managed may form part of a lender’s assessment.
CURRENT COMMITMENTS
Existing borrowing
Loans, credit cards and other credit commitments may also be relevant to the lender’s assessment.
LENDER ASSESSMENT
Different lenders have different criteria
How credit information is assessed can vary between lenders and mortgage applications.
A credit score is not the whole mortgage decision
A mortgage application can involve a wider assessment of your circumstances, borrowing and property rather than relying on a single score. Different lenders can also assess credit information in different ways.
AGREEMENT IN PRINCIPLE
Can an agreement in principle tell you how much you can borrow?
An agreement in principle can give an indication of how much a lender may be prepared to lend based on the information considered at that stage.
It is not the same as a mortgage offer and does not guarantee that a full mortgage application will be approved.
WHAT IT CAN HELP WITH
An indication of potential borrowing
An agreement in principle can provide an initial indication of the amount a lender may be prepared to consider.
Understanding your position
It can help you understand the broad level of borrowing being considered at that stage.
Planning a property search
It may help provide context when considering properties within your intended budget.
WHAT IT DOES NOT MEAN
It is not a mortgage offer
An agreement in principle does not mean the lender has approved a full mortgage application.
Not a guarantee
The lender may need further information and checks before making a final lending decision.
Not final approval of the property
The property and other aspects of the application can still form part of the lender’s assessment.
STAGE 01
Agreement in principle
An initial indication based on the information considered at this stage.
STAGE 02
Full mortgage application
The lender considers the fuller application and carries out the checks required under its process.
STAGE 03
Lender decision
The lender decides whether it is prepared to offer the mortgage and on what terms.
The amount can change
The amount indicated at agreement-in-principle stage may differ from the amount a lender is ultimately prepared to offer. This can depend on the information considered during the full application, the property and the lender’s criteria.
YOUR OWN BUDGET
How much could you borrow — and how much would you want to borrow?
The amount a lender may be prepared to offer and the amount you feel comfortable borrowing are not necessarily the same.
Your own budget, priorities and plans can therefore be relevant when deciding how much you want to borrow.
WHAT MAY BE AVAILABLE
The lender’s assessment
The lender considers the application against its affordability and lending criteria and decides how much, if anything, it is prepared to offer.
This sets the amount the lender may be prepared to make available.
WHAT FEELS APPROPRIATE FOR YOU
Your own budget
You can consider the mortgage payments alongside your other spending, financial commitments and priorities.
The amount available from a lender does not have to determine the amount you choose to borrow.
What might you think about when setting your own budget?
MONTHLY PAYMENTS
How the mortgage payments would fit alongside your other regular spending.
OTHER COMMITMENTS
Existing financial commitments and other demands on your income.
FUTURE PLANS
Changes or plans that could affect your household finances over time.
FINANCIAL FLEXIBILITY
How much room you want to retain within your wider household budget.
Available borrowing does not have to be your borrowing target
A lender’s assessment determines what it may be prepared to offer. It does not determine how much you have to borrow. Your own decision can take account of your wider finances, priorities and plans.
BEFORE YOU APPLY
Questions worth considering before you apply
Before making a mortgage application, it can be useful to think about both the amount you may be able to borrow and how the mortgage would fit with your wider circumstances.
01
How much do you actually need to borrow?
Consider the property purchase, your available deposit and the amount of mortgage borrowing required.
02
How would the mortgage payments fit your budget?
Think about the mortgage alongside your regular spending and other financial commitments.
03
Could your income or expenditure change?
Consider whether foreseeable changes could affect your household finances.
04
What mortgage term are you considering?
The mortgage term can affect the repayments and the overall period over which the borrowing remains outstanding.
05
How much financial flexibility do you want to retain?
Think about how the mortgage would sit alongside your other financial priorities and plans.
06
Do you understand what the lender still needs to assess?
An indication of potential borrowing does not remove the need for the lender to assess the full mortgage application.
There is no single borrowing amount that will be appropriate for everyone. The lender’s assessment and your own circumstances both form part of the wider mortgage decision.
COMMON QUESTIONS
Mortgage borrowing FAQs
Some common questions about how mortgage borrowing and affordability can be assessed.
How many times my income can I borrow?
Does a bigger deposit mean I can borrow more?
Do lenders include bonuses or overtime?
Can self-employed people get a mortgage?
Does existing debt reduce how much I can borrow?
Is an agreement in principle guaranteed?
MORTGAGE GUIDES
Continue exploring
Explore related mortgage guides to understand more about buying your first home, remortgaging and how deposits affect mortgage borrowing.
BUYING YOUR FIRST HOME
First-time buyer mortgages
Understand deposits, affordability, agreements in principle, mortgage applications and the process of buying your first home.
Read the guide →
REVIEWING YOUR MORTGAGE
Remortgaging
Understand why people review their mortgage, how remortgaging works and what to consider before changing your mortgage.
Read the guide →
UNDERSTANDING YOUR DEPOSIT
Mortgage deposits & loan-to-value
Understand how a deposit relates to the mortgage required and what loan-to-value means when arranging a mortgage.
GUIDE COMING SOON
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