Moving Home - How much can I afford?

At the moment, most lenders will consider a multiple of your gross (before tax deductions) annual income. If you are borrowing on a single income, some lenders will consider a loan amount up to four times your annual gross income. If you are borrowing as a couple together, some lenders will consider a loan amount up to three times your gross annual joint income. If a proportion of your income is made up of bonuses or commission payments and these have been consistent for a period of time, lenders may consider using the full amount in their calculation. Overtime payments and income of an inconsistent nature may be restricted to half of the amount.

If you have existing credit commitments (loan payments, credit card payments, hp etc), most lenders would want to make a provision for this in their calculation. After all, you will need to be able to service your existing commitments as well as afford the new mortgage. Two individuals may have very similar incomes but their outgoings can be very different. Any existing loan payments that have more than six months to run, may be annualised and deducted from the gross annual income before the lenders apply the multiple.

Ask for a quote

We would be delighted to hear from you if you would like to talk to us about affordability for your new mortgage. Call us free on 8088 298 5136. Alternatively, use the call me feature and we will contact you at a convenient time. If it's just a quick quote you're after, we will be pleased to help.

It should be quite straightforward to calculate how much you can afford every month. Write down what money you have coming in on a monthly basis in one column and your outgoings in another. Remember to include a monthly allowance for irregular expenditure items (car maintenance, holidays, savings etc). Now take away what you spend each month from your income but ignore your existing mortgage payment. Finally, add in anything new that you may have to pay, such as additional travel costs to your workplace from your new home. You should be able to use the remainder to support your mortgage payments.

Income multiple calculation example:

Current home	Value of existing home	£170,000
	Mortgage outstanding	£80,000
	Equity	£90,000
Principle applicant	gross annual income	£28,000
Principle applicant	gross annual overtime/allowances	£10,000
Second applicant	gross annual income	£16,000
Principle applicant	annual personal loan commitments	£1,452

To calculate the principle applicants allowable income for mortgage purposes, add half of the overtime and take away the loan amount as follows:

£28,000 plus £5,000 (overtime may be regarded as consistent but is not guaranteed) less £1,452 (existing loan commitment) = £31,548

Apply the lenders multiple as follows:
£31,548 x 3.5 (typical lenders multiple) = £110,418.

Add the second applicants gross annual income to £110,418 to calculate the maximum mortgage advance:

£110,418 + £16,000 = £126,418

More importantly, the mortgage payments need to be affordable now and at a later date which is why, more recently, some of lenders have moved away from traditional income multiples preferring to adopt an affordability calculation instead. Each lender will have its own method, but generally they will all try to calculate your disposable income. Some affordability calculators take into consideration your tax status, the mortgage term required (normally up to 25 years), number of dependents, household expenses and other credit commitments. In some circumstances this method allows the customer to borrow more than he would have done using the multiples.

Don't overstretch your budget!

It may be tempting to borrow as much as possible when the initial costs (most lenders offer low introductory interest rates) are just about manageable. It's important to consider the medium/long term costs because you could get into difficulties and lose your home if you can't keep up your repayments.

Should I budget for increased costs in future?

If you take a variable rate mortgage be prepared for your monthly payments to go up when interest rates rise. If you are opting for a heavily discounted rate, you may have to pay full rate some time in the future. If you have a low initial fixed rate or a discounted mortgage, you may need to allow for the increased cost when your introductory interest rate comes to an end.

We will provide you with a Key Facts Illustration which will help you to work out whether you can afford your mortgage in the future and if rates rise.

What if I get into difficulties with the mortgage payments?

If you do experience difficulties with your payments it's important that you talk to your lender as soon as possible otherwise you could risk losing your home. The lender will work with you to establish suitable payment plan.