Updated: Apr 12
You are ready to make the jump into buying your first home, moving onto a new property, or investing in real estate to begin your Buy to Let portfolio. However, you are unsure sure on the amount you can borrow. Here we will discuss the areas that you need to understand when trying to calculate maximum borrowing amounts and how you can influence this yourself.
The more money you make, the more you will be able to borrow for a mortgage. Having a joint mortgage can make you look more favourable for a larger borrowing amount. The lenders will take the total annual income from all parties and calculate your affordability. You can have up to four people on a joint mortgage. However, there are factors of your income that can change the amount you can borrow.
· Did you know that if you receive child benefit in the UK, a vast majority of lenders will accept this as a form of income? This income will also go towards your maximum borrowing amount. You must show evidence of this benefit, by requesting a child benefit reward letter or showing the money through your bank statement.
· Your employment status may affect the amount you can borrow. As someone who is employed you can show your annual income using payslips. A lender is likely to lend a higher borrowing amount to someone who has guaranteed income. For someone who is self-employed, they are categorised as a risk due to uncertainty of producing income. However, this should not put self-employed owners off looking to get a mortgage.
· Contract types also known as zero hours, part time, full time, temporary are subject to further criteria checks. This is because their income can fluctuate depending on the companies demand for that person’s hours. Lenders will look at these contracts in more detail to see if they can prove affordability in repaying the mortgage over a period of years.
Also known as debts and outstanding commitments. If debts are ongoing whilst you are repaying your mortgage, you will find that the lenders will reduce your borrowing amount. The more debt you have the less you can borrow.
Is my Netflix a debt as its paid monthly? No, as you can cancel your subscription at any time. However, if you do not keep up with your payments, they can seek debt collection order.
Here is a list of liabilities and general lifestyle expense,
· Credit Cards
· Personal Loans
· Existing Mortgages
· Hire Purchase / PCP agreements
· Anything with a finance agreement (like that new laptop you bought at 0% interest)
Lifestyle expenses are;
· Gym memberships
· Amazon Prime
If you want a clearer definition of what will count as a liability, be sure to follow the link below to sign up to CheckMyFile. Try it FREE for 30 days, then £14.99 a month & cancel online anytime. CheckMyFile produces a detailed credit report that checks data from Equifax, Experian, TransUnion and Crediva.
This refers to the people in your care. They may be family members, children or elderly relatives who rely on your income. The more dependants you have the less you able to borrow. However, as previously discussed in the income section, lenders will consider other sources of income for example universal credit, attendance allowance and much more. These benefits are to help ease financial burden on the careers who are seeking a mortgage.
12th July 2022