How much could I borrow for a mortgage?

For many people, the house buying process can seem mystifying and the financial side of making a purchase can be particularly tricky. Unless you’ve recently gone through the process, it can seem overwhelming to get started. In this article we answer the question of how much could you borrow for a mortgage?

There are several components to the financial side of buying a house: the value of the property you wish to purchase, the cash deposit you can pay upfront and your annual salary. If you adjust one of the figures, it has an impact on the others. Understanding this can help you make a start with setting a budget for your property search.

How many times my salary can I borrow for a mortgage?

If you are choosing to finance a property with a mortgage company the lenders like to see a solid employment history and an income with plenty of headroom to afford the repayment, both now and in times of vastly increased interest rates (this is called a financial stress test). This review will also look at your monthly spending, so commitments like an expensive car lease will have an impact on how much a mortgage company will lend you.

This is because the mortgage companies are investing a lot of money into the property in question and they can lose money very quickly if the house has to be repossessed and sold at auction (albeit that is a last resort action). As a result, they will also look into your credit history to make sure you are credit worthy. In essence, the higher your salary, the longer you have been employed and the better your credit history, the more a mortgage company will lend to you. Conversely, the lower your salary, the more times you have changed jobs or had breaks and the worse your credit history is, the less the mortgage company will be willing to lend to you.

In terms of how many times your salary a mortgage company will lend you, in the very best situation it is likely to be around 5 times your salary and on the other end of the scale it could be closer to 3 times your salary. Taking the above into account, you can estimate how many times your salary you could borrow using the table below. This is a useful exercise to get a very rough idea of your house-hunting budget. As an example, if you earn £40,000 you could expect to borrow in the region of £120,000 to £200,000 whereas if your earned £100,000 you could borrow somewhere from £300,000 to £500,000.

Salary / Multiples	3x	4x	5x
£15k	£45k	£60k	£75k
£25k	£75k	£100k	£125k
£30k	£90k	£120k	£150k
£40k	£120k	£160k	£200k
£60k	£180k	£240k	£300k
£80k	£240k	£320k	£400k
£100k	£300k	£400k	£500k
£125k	£375k	£500k	£625k
£150k	£450k	£600k	£750k
£200k	£600k	£800k	£1m
£300k	£900k	£1.2m	£1.5m
£500k	£1.5m	£2m	£2.5m

Estimate how much you could borrow for a mortgage with your current salary.

What deposit do I need to buy a house?

The next step in working out your house-buying budget is to factor in the cash deposit you have. If you don’t have any equity in your current home (e.g. if you are a first-time buyer), this is the most difficult money to raise. The typical methods of raising a deposit include:

• Putting aside regular savings from your salary;

• Inheriting or being gifted the deposit;

• Using a bonus from work;

• Having some funds available from a divorce;

• Using the Help to Buy scheme (or similar) where available.

As you can see from the table below, a house deposit is typically going to be a figure of tens of thousands of pounds. From the lender’s perspective, the more deposit you put in, the less risk they have with loaning the money and, all things being equal, they are likely to offer a reduced interest rate or a higher income multiple for the mortgage. The deposit required usually has to be at least 5% of the property value, however the lenders may require more than 20% to offer you a loan. This is called the Loan to Value (LTV) ratio and compares the value of the mortgage against the overall value of the house - the higher your deposit, the lower the LTV and the better mortgage rate you could achieve.

Looking at the table below, if you were looking at buying a £300,000 house, you would need a deposit of at least £15,000 (5%) but it could be over £60,000 (20%). Thinking back to the previous figures, we found that an individual earning £40,000 could borrow somewhere between £120,000 (3x salary) and £200,000 (5x salary). If they wanted to buy the £300,000 house, they would have to find a deposit between £100,000 (33%) and £180,000 (60%) to make up the difference between what they can borrow (£120,000 to £150,000) and the house price (£300,000). This is certainly an option of they have equity in their existing home, however if they are a first-time buyer, a house that costs nearer £200,000 could be a better place to start. A 5% deposit on a £200,000 house will be £10,000, resulting in a mortgage of £190,000 which is more within reach of someone earning £40,000. If the buyer could stretch to a 15% deposit of £30,000, it will result in a mortgage of £170,000.

House Price	5% Deposit	10% Deposit	15% Deposit
£200k	£10k	£20k	£30k
£300k	£15k	£30k	£45k
£400k	£20k	£40k	£60k
£500k	£25k	£50k	£75k
£600k	£30k	£60k	£90k
£700k	£35k	£70k	£105k
£1m	£50k	£100k	£150k
£1.5m	£75k	£150k	£225k

Estimate how much deposit you need to buy a house.

What salary do I need to buy a house?

A useful estimating exercise is to work backwards from the deposit you have to then see if your salary fits in the income multiple ranges outlined in the table below. For example, if the house you want to buy is £200,000 and you have £50,000 available as a deposit (25%), you will need a mortgage of £150,000. Looking at the table and in very basic terms you will need to be earning somewhere between £30,000 and £50,000. The mortgage required is on the left-hand side and the income multiples run across the top.

Just remember though that you need to factor in the minimum deposit required of between 5% and 20%. To work this out, just multiply the house price by 0.05 for 5%, 0.1 for 10%, 0.15 for 15%, 0.2 for 20% and so on. Deduct this number from the house price and you will be left with the mortgage required.

Mtg. / Multiple	3x	4x	5x
£100k	£34k	£25k	£20k
£150k	£50k	£34k	£30k
£200k	£67k	£50k	£40k
£250k	£84k	£63k	£50k
£300k	£100k	£75k	£60k
£400k	£134k	£100k	£80k
£500k	£167k	£125k	£100k
£750k	£250k	£188k	£150k
£1.5m	£500k	£375k	£300k

Estimate what salary you need to buy a house.

What’s the next step?

Once you have an idea of the mortgage value you are likely to secure and once you have raised a cash deposit, the next step is to talk to a Mortgage Advisor to get a mortgage Agreement in Principle (AIP), sometimes called a Decision in Principle (DIP). This is a high-level, personalised estimate of how much you could actually borrow based on your individual financial circumstances. This is really useful to have when viewing properties as it helps you to stay focussed on what you can afford and not to waste time going over budget, looking at houses you can’t afford. However, the only way you will truly understand how much you could borrow is to submit a full application once you’ve found a property.

Our expert Mortgage Advisers are based in Tunbridge Wells, Kent and we advise clients in neighbouring East Sussex and across the UK as a whole. If you need a hand understanding how much you could borrow, what deposit you need and to look at the likely mortgage rates and products that may suit your circumstances, we would be very happy to help out. We also have a more in-depth article on calculating the costs of buying a house.

This article offers information about mortgages and should not be taken as personal advice. Think carefully before securing 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.