Mortgage calculator: How to work out how much you can borrow – tips

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Moving house is often a complicated and lengthy process. But the first step for many on the property ladder is saving up a deposit for a house before applying for a mortgage. Mortgages are a loan taken out to buy a property or land and many people apply for mortgages through a bank or building society.

How much can I borrow?

Over the last few years, a number of changes have been brought in for mortgage applications.

The Financial Conduct Authority conducted a full review of the mortgage market in 2014.

One of the changes brought into effect was the need for a more rigorous affordability assessment.

According to the Money Advice Service, the affordability assessment takes into account what level of monthly payments people can afford.

An affordability assessment must also take into account income as well as personal and living expenses.

How much someone earns are a big part of a mortgage application.

When lenders calculate how much to let someone borrow for a mortgage, they use something called the loan-to-income ratio.

At the moment, lenders tend to cap the loan-to-income ratio and four and a half times someone’s income.

In general, banks will tend to offer between three and four and half times someone’s annual income for a mortgage.

However, Which? explains there are some exceptions to this in some cases.

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For example, doctors, dentists and other professionals may be able to borrow up to six times their annual income from some mortgage providers.

The Money Advice Service explains more about the loan-to-income ratio on their website: “In the past, mortgage lenders based the amount you could borrow mainly on a multiple of your income. This is known as the loan-to-income ratio.

“For example, if your annual income was £50,000, you might have been able to borrow three to five times this amount, giving you a mortgage of up to £250,000.

“Now, when you apply for a mortgage, the lender will cap the loan-to-income ratio at four-and-a-half times your income.”

Where can you find mortgage calculators?

There are ways of finding out estimates of how much you might be able to borrow for a mortgage.

Several banks offer online mortgage calculators if you want to find out an estimate of how much you may be able to borrow.

The Money Advice Service also offers an online mortgage calculator HERE.

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