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How does my salary affect my mortgage amount?

When you’re filling out your mortgage application there are loads of important factors that you’ll need to consider. One of these factors is your salary. Read on to find out more about how this can affect your mortgage amount! 

When you’re starting your mortgage application there always seems to be an exhaustive list of things for you to consider before you make your move into your new home. This can include loads of different factors. For example, broker fees, solicitor fees, arrangement fees, your credit score and a whole host of other issues. And the sad thing is that this can make the buying process pretty intimidating, especially if you’re doing it for the first time.

Key influences on your mortgage application such as your salary, will have a huge impact. Most mortgage advisers will tell you that they’ll need to take into account how you spend your money as well as how much you earn. Thus, making the process of how much lenders are willing to let you borrow slightly more complicated. Let’s find out more!

How much should I be able to borrow?

Traditionally, most mortgage lenders normally lend borrowers mortgages that total four to five times that of their combined annual income. However readers, nowadays the amount that you’ll be able to borrow isn’t just a simple multiplication of your annual salary. This is because technology has allowed lenders to introduce complex algorythms to calculate your affordability. These algorythms pull in datas from the Office of National Statistics for a guide on expected commitments as well as salary expectations, meaning two people earning the same annual salary but with different commitments will be offered very different maximum loan amounts.  

What will affordability assessments involve?

Since 2014, mortgage lenders have had to conduct affordability assessments to judge how much they can lend to a borrower. This goes far beyond the simple calculations to estimate how much you can borrow of yesteryear. While most mortgage advisers will still tell you that these calculations can play a part in working out how much you can borrow. Once the affordability assessment has been conducted this may reduce the amount depending on a number of issues.

For example, affordability assessments will take into account your day-to-day expenditure as well as your salary. This will also involve checks on whether you will be able to sustain repaying your mortgage should your financial situation change in any way. This may then involve looking at the type of work you are in and how long you have been doing it for, whether you are self-employed and any bonuses or commission that you receive.

What if I’m buying a home as part of a joint mortgage?

A lot of mortgage advisers will tell you that joint mortgages can be a great way of boosting the amount that you can borrow from lenders. Why? This is because when you are looking to borrow money from a bank or building society, the lenders will look at the salaries from the house as a whole. So, for those of you that haven’t worked it out yet, this means that they’ll make an estimate on how much you can borrow from the total income of the homeowners. However, we recommend that you do your research before you decide on going for a joint mortgage. This is because some lenders may base their calculations on a lower multiple for those in a multiple occupancy home. Overall, if you’ve thought about living with friends or family in the past then definitely give this idea some thought!

What should influence my affordability calculations?

When you’re going through your mortgage application your lender is going to need to know a few things. This will include the consistency of your salary and if you have any added income from bonuses or any freelance work that you might do.

This will also include the way in which you spend money. I.e. looking at how extravagant you are with your spending and any regular financial commitments that you have. Memberships & subscriptions such as gym memberships or magazine subscriptions that can be cancelled quite easily don't normally get taken into account. Your lenders are going to be really thorough so they’re also going to be checking up on your bills and any other loan repayments that you might have. This is going to be vital to proving that you have a good credit score, something that lenders put a lot of emphasis on. This is to provide proof that you have a good track record of making repayments on time and at the correct amount.

How will I go about proving this?

When mortgage lenders ask you to prove your outgoings they’ll ask for documents such as bank statements or any utility bills that you might have. This will help your lender work out whether the borrower can afford the monthly mortgage repayments due to any outstanding financial commitments that you might have.

Important thing for you to remember is that there is a reason for all of this. If you end up being lent an amount that you’ll be unable to pay back, this could land you in seriously hot water. For example, it may mean that you have to move or have your home repossessed.

What more can we do to help?

The good thing is that it doesn’t have to be this way. At Mortgages Online we are a mortgage adviser that can help answer any questions you might have on your salary and how it might affect the amount that you borrow. The great thing is that our advice is free so what are you waiting for? Our team of expert mortgage advisers are here to take the weight off of your shoulders so contact us or check out some of the other articles on our website!

For tonnes of resources on stamp duty, types of mortgages (included self-employed mortgages), first-time buyers information, remortgage guides, mortgage brokers’ advice and more, click to our Articles section. All of this mortgage advice for free! Leave that credit card in your pocket.

PaulFlavin

Paul Flavin

Paul Flavin is the Managing Director of Mortgages Online and has been working in the mortgage industry for over 20 years. Running a successful independent mortgage broker since 2010, Paul oversees Mortgages Online and creates articles regularly – drawing on his years of mortgage experience.

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