How do mortgage providers decide how much you can borrow?

The mortgage amount you can borrow depends on factors including your income and the size of the deposit you are going to put down. Lenders use specific criteria to assess your eligibility.

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Income and affordability are assessed

Lenders typically use an income multiple to determine how much you can borrow. This multiple is around four to five times your annual gross income but can vary amongst providers. Lenders will also assess your ability to afford the mortgage by considering your income, expenses such as grocery bills, and financial commitments such as loans. They often use affordability calculators to evaluate your situation.

Credit history plays a vital role

Your credit history and credit score play a significant role in determining your eligibility for a mortgage. A good credit history can increase your chances of obtaining a larger loan at a lower interest rate. This applies to home and commercial mortgages.

Directors of a company may have to give a directors personal guarantee when applying for a commercial mortgage. A directors personal guarantee means that if the company is unable to repay the mortgage, their personal assets may be repossessed.

How large is your deposit?

The size of your deposit affects the amount you can borrow; the larger the deposit, the less you need to borrow. According to the Daily Mail, now is a good time to secure a home loan. It is always advisable to speak with an adviser before applying for a mortgage.\

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Will the interest rate affect my application?

The interest rate on the mortgage will affect the size of the loan. Higher interest rates result in higher monthly payments, which may limit the amount you can borrow. The length of the mortgage term also affects how much you can borrow.

Author: Niru Taylor

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