How much mortgage can I afford?
How much mortgage you can afford will depend on how much you can and are willing to spend on your monthly payments plus for how long. This will be based on your incoming funds and whether you would still be able to afford your mortgage if the repayments were to increase or you were to lose your income.
If you are a first time buyer you may like to read our essential mortgage guide on how much can I afford?
How much can I borrow for a mortgage?
How much you can borrow for a mortgage will depend on the length and the size of the mortgage you are applying for as well as your age. Lenders will calculate how much you can borrow for your mortgage by comparing your incoming money with your outgoings to ensure that you can pay it back.
If you are looking to borrow past retirement age this may require careful consideration. Lenders will generally offer mortgages up to the age of 75 and some even longer. Many will accept that you may work until you are 70, but will then require evidence of retirement income after this date.
Read more in our essential guide called how much can I borrow for a mortgage?
How are mortgages calculated?
Your overall mortgage loan is calculated with the total price of the property that you are borrowing against minus your deposit. The deposit could be made up of equity from a previous property as well as a cash deposit, or, if you are a first time buyer it will be a cash deposit of a certain percentage of the total cost of the property.
The mortgage is the actual loan of the funds for the house. For example if a house is £200,000 and you have a £40,000 deposit your mortgage will be £160,000.
Your mortgage will then have an interest rate applied to it which will determine your monthly repayments. Mortgage interest rates are calculated by the lenders and will depend on their current competition in the market and how much it costs the lender. The Bank of England base rate can affect mortgage interest rates too.
Occasionally you can also add the price of your mortgage fee, if it has one, to your overall mortgage and include this repayment in the overall monthly repayments of your loan.
What types of mortgages are available?
There are lots of different types and features of mortgages such as fixed-rate, tracker and discount mortgages but the only two methods of payment are repayment and interest only payments.
A repayment mortgage is where you gradually pay off all the money owed on the property, as well as the accrued interest with monthly payments. An interest-only mortgage is where you only pay off the interest on your loan each month – but you’ll still have the full balance of the mortgage on the property to repay at the end of the agreement which will need to be discussed with the lender at the beginning of the agreement.
How do I improve my chances of getting a mortgage?
To improve your chances of getting a mortgage or opening up the market so that you have the most deals to choose from you can do some or all of the following:
1) Save the biggest deposit you can. This can open up the lower end of the interest rate mortgage products to you; can also lower your monthly repayments. A Lifetime ISA could help boost your initial deposit if you are a first time buyer.
2) Ensure your credit score is as healthy as it can be but remember that credit is not necessarily a negative thing. Lenders want to see that you can repay credit.
3) Reduce unnecessary spending in the months leading up to applying for your mortgage, if a lender can see disposable income it will be favourable for your long term affordability checks
4) Encourage regular income. If you have a regular salaried job this will be clear from your payslips and bank statements. Read our self-employed guide for how it can work for non PAYE workers.