When you apply for a mortgage, most lenders will cap the loan-to-income ratio at 4.5 times your income.
When working out how much you can afford to borrow, the lender will look at:
1. Your income
- your basic income
- income from your pension or investments
- income in the form of child maintenance and financial support from ex-spouses
- any other earnings – e.g. overtime, commission or bonus payments or a second job or freelance work.
Evidence of your income include pay slips and bank statements
If you’re self-employed you’ll need to provide:
- bank statements
- business accounts
- details of the income tax you’ve paid
2. Your outgoings
Check your credit report before applying for a mortgage.
This will give you time to correct any mistakes in it and will notify you of any missed credit payments that could make the mortgage lender turn you down.
Any financial commitments such as student loan payments from your payslips (and the outstanding amount) along with credit cards, these will need to be confirmed in order to give you a more accurate borrowing figure.
- credit card repayments
- maintenance payments
- insurance - building, contents, travel, pet, life, etc
- any other loans or credit agreements you might have
- bills such as water, gas, electricity, phone, broadband.
The lender might ask for estimates of your living costs such as spending on clothes, basic recreation and childcare.
They might also ask to see some recent bank statements to back up the figures you supply.
3. Future changes that might make an impact
The lender will assess whether you’d be able to pay your mortgage if:
- interest rates increased
- you or your partner lost their job
- you couldn’t work because of illness
- your life changed, such as having a baby or a career break.
It’s important that you also think ahead and plan how you’d meet your payments.
For example, you can help to protect yourself against unexpected drops in income by building up savings when you can.