How much can I really borrow?

Mortgage affordability is a big deal when gearing up to buy a property here in East Anglia or the rest of the UK. Affordability rules and checks help you and your lender determine how much you can realistically borrow and repay, not just at the point of purchase but into the future as you enjoy life in your new home. Contrary to popular belief, deciphering how much you can borrow goes beyond simply multiplying your salary.

Read on for a lowdown on mortgage affordability, including what lenders look at, the influence your credit report has, and the top ways to boost your chances of mortgage success.

Why does it pay to understand mortgage affordability?

Whether you’re a first time buyer or moving up the property ladder, understanding affordability is vital. It’ll help you pinpoint your true buying budget, with the ability to shop within a price range you can realistically afford saving you a lot of heartache when viewing properties.

By understanding mortgage affordability, you’re protected from becoming overstretched too. You’ll also be able to avoid annoying delays and even mortgage rejections, and you’ll have stronger negotiating power as a result.

How do lenders determine what I can afford?

There are several boxes you’ll have to tick as a mortgage applicant to be successful, with your income (including bonuses, commission, overtime and self-employed profits), monthly outgoings and living costs all carefully analysed to understand how much you can borrow.

You’ll also be stress tested to ensure you can still afford mortgage payments even if interest rates were to rise above your proposed initial rate. Ultimately, lenders want to make sure that you have what it takes to afford your home for the long haul. With this in mind, you’ll need to prepare several documents to support your mortgage application.

What do I need to submit to secure an AIP?

If you’re applying for an Agreement in Principle (AIP), the process is a little simpler. An Agreement, or Decision, in Principle offers an early indication of how much a mortgage provider is likely to lend you for your property purchase.

While you’ll still need to provide income and debt information to secure your AIP, this more basic affordability calculation often involves a softer credit check over a hard credit check to determine how much you should be able to borrow. We’ll let Experian explain the difference between the two:

“Soft credit checks aren’t visible to companies, but hard credit checks are. That means that soft credit checks won’t impact your score (no matter how many of them there are), while each hard credit check may lower your score… Because soft credit checks leave no trace on your credit report, you can use them to see how eligible you are for a wide range of credit without actually applying – whether you’re looking for a loan to pay for a holiday or a credit card for everyday purchases.”

Whether soft or hard, your credit check plays a crucial role in mortgage success and could even influence the interest rates you are eligible for.

Any advice for improving my mortgage affordability?

Not expecting to perform very well during mortgage affordability assessments? All is not lost! There are improvements you can make to get your ‘ducks in a row’ and boost your chances of mortgage success. Checking your credit file early is a great place to start. Review your report and correct any errors before launching your mortgage or AIP application.

If time is on your side, use it wisely to reduce any unsecured debt you may have. Lower credit and store card balances improve affordability calculations, with lenders preferring lower utilisation ratios from their applicants. You should review your spending habits too. Spend less on gambling and miscellaneous purchases, avoid excessive overdraft use and minimise new borrowing to positively influence affordability.

Working with a mortgage broker – like us! – is another thing we’d recommend. Let us match you with deals that suit your circumstances by contacting our team today.