The mortgage estimate generated by this tool is for your own guidance only. It is not an official mortgage quote. Your mortgage provider will take into account other factors beyond the scope of this calculator, so your actual mortgage offer and repayments may be different.
This tool lets you see how a range of different interest rates might affect your mortgage repayments. It is a good idea to experiment with a variety of interest rates, as these are likely to change over your mortgage term, and you may not always be offered the same rate.
Broadly, the calculation for how much mortgage you can borrow is between 4 times and four-and-a-half times your annual income. So for example, if you earn £25,000 a year, you could borrow between £100,000 and £112,500.
Use our mortgage calculator
to get an estimate of how much you could borrow.
However, there are other factors that affect the calculation of how much a provider will lend to you. These are:
Loan-to-value (LTV) ratio
i.e. what percentage of the value of the property will be covered by the loan? The higher this percentage, the lower your mortgage offer might be.
Credit score / history
Source of income
You need to be certain that you can keep up your mortgage repayments. If you miss a repayment, or several, your home becomes increasingly at risk of repossession by your lender.
Therefore your lender will ask you questions about your everyday spending, both essential and discretionary. For example, if it costs you a certain amount to commute to work, and you can’t reduce this figure, then your lender will take this into account when working out how much you could afford to repay. However, if you habitually eat out regularly, you could easily reduce this expenditure to show that you have more disposable income.
It’s tempting to stretch yourself to the limit when buying a home, and there are good arguments for doing so. Property has historically been a good long-term investment (though values can fall in the short term) and you may not want to keep moving every few years – so it makes a lot of sense to buy a home you’ll still want in eight to 10 years’ time.
However, bear in mind that interest rates are at historical lows, and that the economy has been hit hard by Covid and other factors. Future rises in interest rates could significantly increase your monthly repayments, while a redundancy might severely impact your ability to repay your mortgage.
Therefore it’s a good idea to give yourself a safety margin, and aim for monthly repayments that are lower than the absolute maximum you could afford. How big a margin is up to you, and may depend on your own circumstances and attitude to risk. Broadly, the more vulnerable your job/income may be, the bigger margin you should allow.
Virtually all mortgages require a cash deposit too (the exceptions are some guarantor mortgages where another person, e.g. a parent, puts up financial security instead). For example, if you were buying a £200,000 home, you might be offered up to £180,000 as a mortgage only if you could provide £20,000 in cash to cover the rest of the cost. In this example, your deposit would be 10% of the total property price, and your mortgage would cover the other 90%. This is commonly referred to as a ‘90% mortgage’. If on the other hand you had £40,000 in cash, you could take out a mortgage of just £160,000. This would be an 80% mortgage.
This is known as your ‘loan-to-value (LTV) ratio’, though it’s usually expressed as a percentage rather than a ratio. The higher your deposit (relative to the total price of the property), the lower your LTV ratio is.
Broadly speaking, the lower your LTV ratio, the better mortgage deal you’ll be offered, as you’re a lower risk for the lender. For example, at a 90% mortgage you may only be offered the deals with the highest interest rates and longest lock-in periods, while an 85% or 80% mortgage will open up more options for lower monthly repayments and (perhaps) an easier way out of the deal when you want to remortgage.
It’s up to you whether you want to try and save a bit more in order to squeeze into the next 5% band. Doing so can save you a significant amount over the years, in the form of lower repayments.
The main factors that can get in the way of your being offered a good mortgage deal (or any mortgage at all) include:
Your credit score, or credit rating, is a lender’s own estimate of how good a borrower you will be. Every lender has their own way of assessing this, and there are various different credit agencies that assign you a credit score based on your history of borrowing and repaying. This may sound complicated, but it boils down to this: if you make a habit of repaying credit promptly, your score will rise. If you over-used credit and/or are late paying it off, your score will fall.
Various types of mortgages are available, each with their pros and cons. Here’s a summary of their key features:
Even if you found the best deal first time, you’ll be moved onto a variable mortgage when your current preferential rate expires. This means you will probably need to remortgage every few years to keep your repayments affordable.
Other reasons to remortgage include:
There are sometimes obstacles to remortgaging. For example, your current deal may last longer than your preferential interest rate, so you are ‘locked in’ to it for a few more years on your lender’s SVR. Leaving a mortgage deal inside the ‘lock-in period’ can mean having to pay a large early repayment fee.
A mortgage broker can also find you a buy-to-let mortgage if you want to buy rental property and let it out. However, the lending conditions are different from when you buy a home for yourself, and much more rigorous.
Usually you will have to be a homeowner already. Very few lenders will offer you a buy-to-let mortgage if you don’t own a home of your own.
The minimum deposit for a buy-to-let mortgage is 25%, and may be as much as 40%. Most buy-to-let mortgages are interest-only, which means the mortgage repayments only cover the interest. This keeps repayments lower, but does mean that to pay off the original loan, you’ll have to sell the property.