With house prices currently at an all-time high, this is a question we hear all too often. We’ve summarised some key ways to help improve your chances of securing the most amount of mortgage possible.
How do mortgage providers decide what to lend?
Mortgage providers will have their own set criteria when determining how much they will lend you, there are several factors that will influence how much you can borrow, including;
- The size of your deposit
- The level of your income and outgoings
- The property type – some lenders view certain types of properties as more risky than others.
- Your employment status
- Your credit rating
Ways to increase your borrowing power
Pay off debts
The amount of outstanding debt you owe can make a significant difference to the amount you can borrow.
With personal loans, mortgage providers usually place great importance on the monthly payment compared to the total balance, therefore, a relatively small loan with a higher monthly payment could impact your affordability more than a larger loan spread over a longer period with a lower payment. Paying off a loan could enable you to borrow more on the mortgage than you repaid on the loan.
With regard to credit cards, mortgage providers will usually make their own affordability calculations rather than the amount you may pay. For example, a mortgage lender may take 5% of a credit card as a monthly commitment, whilst the minimum payment may be just 2%. Lease and finance agreements are also factored into a commitment.
Some lenders will insist that your credit commitments are cleared prior to application if they are to be ignored for affordability purposes. Others will ignore them from affordability if you intend to clear the debts after application but before completion of the mortgage.
Put a bigger deposit down
Mortgage lending is all about assessing risk, lenders feel more comfortable when you put a larger deposit down.
Putting a bigger deposit down will not only help your chances of securing a lower interest rate, but it may also help you secure a higher amount of borrowing.
LTV (loan to value) can have a significant impact on the amount you can borrow. Lenders loan-to-value thresholds are generally at 5% intervals, and some lenders will consider lending more at each interval. For example, lenders will generally not offer more than 4.5 times your income if you put down less than 10%.
If you can put down a 10% deposit, lenders will generally consider up to 4.75 times your income, although securing more than this is still possible. You will have more chance of securing a mortgage 5 times your income or above with a 15%-25% deposit.
If you’re close to an LTV threshold, it’s worth exploring what difference it would make in increasing your deposit.
NatWest would lend a customer £222,500 to a customer earning £50k pa with a 24% deposit or £247,500 to the same customer with a 25% deposit.
Speak To an Expert
Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
Organise your accounts
If you’re self-employed, preparation is key and understanding how lenders assess your income prior to submitting your accounts may influence how you file them.
Business owners will often run their businesses in the most tax-efficient way possible, which is great until it comes to getting a mortgage.
Improve your credit rating
If you’ve got a good credit rating, you’ll have access to a broader range of lenders and, therefore by default, have a better chance of securing more money or a more favourable deal.
Get a pay rise or do overtime
Ultimately the biggest influence on affordability is your income, there are several ways you may be able to increase your income.
If you’ve recently had a pay rise or are expecting one in the not-too-distant future, you may be able to use this for affordability purposes.
Some mortgage providers will accept a letter from your employer confirming an imminent pay rise, it will usually need to be guaranteed to take effect within 3 months of your application.
As a rule of thumb, mortgage lenders will lend around 4.5 – 5 times your income, therefore, even a relatively modest pay rise can make a sizeable difference to the amount you can borrow.
Almost all mortgage providers will accept overtime for affordability purposes. Their criteria will differ amongst lenders, some will use around 50% of the income, and others will consider 100% for affordability purposes.
Generally, lenders will take an average of the most recent 3-6 months of overtime, although some consider a 12–24-month average.
Affordability and criteria vary significantly between mortgage providers. The amount different lenders may be prepared to lend the same customer can vary by 10’s and, in some cases, hundreds of thousands of pounds.
If you’re looking to maximise your borrowing power, shopping around is an absolute must.
Working with an independent mortgage broker who has access to a large range of lenders will give you the best chance of securing the most amount of borrowing.
Extend the loan term
Borrowing over a shorter term will ensure you pay less total interest over the term, although your monthly mortgage payments will be higher. Extending the mortgage term can often increase the amount a lender may be prepared to lend you because they feel more comfortable you will be able to make the payments.
If you end up taking a mortgage over a longer term than you originally planned to enable you to borrow more, most mortgage lenders allow 10% annual overpayments per year without penalty. This means you may still be able to clear it over the same period as you originally intended.
Adding another person to the mortgage is a great way to increase your borrowing power. Both incomes and outgoings for each applicant will be considered, and both applicants must meet the lender’s criteria.
If, however, one of the applicants owns a share in another property, you may be liable to pay additional stamp duty when purchasing a new home.
To learn more about joint mortgages, read our guide.
How can Strive Mortgages help?
Finding the best mortgage deal isn’t necessarily always about securing the lowest interest rate available, of course, it plays a big part.
Sometimes, just as equally important is finding a lender that is prepared to lend that little bit more to enable you to buy the right property in the right area. Having an experienced mortgage broker like Strive to help you explore and understand all the options available can prove invaluable. Get in touch with us today.