How to Borrow the Maximum on Your Mortgage
Your home may be repossessed if you do not keep up repayments on your mortgage.
All information was accurate at the time of publication.
29th July 2024
Recent headlines have highlighted the emergence of lenders offering mortgages up to six times an applicant's income. This development has sparked interest among those looking to climb the property ladder or secure additional borrowing.
But is borrowing the maximum amount truly beneficial? And what are the potential costs?
In this blog, we'll delve into the details of lenders like April and Teacher Building Society, which offer mortgages of up to six times income, as well as Nationwide's 5.5 times Helping Hand mortgage.
We'll also explore other lenders' offerings and provide a balanced overview of the advantages and disadvantages of maximising your mortgage borrowing.
How much can I borrow?
One of the most common questions I receive is about how much people can typically borrow for a mortgage. While a general guideline is 4.5 to 5 times your annual income, it's important to remember that lending criteria can vary significantly between lenders. That's where a mortgage broker can be invaluable. We have access to a wide range of lenders and mortgage products, allowing us to quickly assess your options and help you determine the maximum amount you could potentially borrow.
How do the lenders assess affordability?
Lenders primarily assess your income and expenses to determine your affordability.
For employed individuals, this includes your basic salary, bonuses, overtime, commission, and any additional allowances like car or London weighting.
Self-employed applicants typically provide their accounts and tax returns for review.
For a deeper understanding of mortgage options for the self-employed, please read my blog "Mortgages for the Self-Employed".
Your outgoings are also carefully considered. These include loans, credit cards, car finance, and commitments like childcare or child maintenance.
It's important to note that even unusual expenses can be considered. I once had a client who kept horses and the cost of the stables was taken into consideration.
Ultimately, lenders aim to ensure you can comfortably manage your mortgage repayments.
How can I borrow as much as possible?
To maximise your borrowing potential, it's essential to optimise your income and minimise your outgoings. Lenders often consider overtime and commission as part of your regular income if you can demonstrate consistent earnings. If you work in the NHS, for example, and regularly work weekends or bank holidays, this can positively impact your borrowing capacity.
A clean credit record with no outstanding balances can also strengthen your application. While lenders typically use national average figures for everyday expenses like food and utilities, reducing these costs can still improve your affordability assessment.
We can also look at your Mortgage term. Unlike popular belief, a 25-year mortgage isn't a standard. You can tailor your mortgage term to suit your budget, with most lenders offering terms up to 35 or 40 years. However, longer terms generally result in higher overall interest payments. It's important to consider your retirement plans, as many lenders prefer to avoid mortgages extending beyond the age of 70. In such cases, proof of pension income is likely to be required.
Which lenders can lend 6 times my income?
Recently, theres been a lot of press about a new lender called April Mortgages who launched in April 2024. They have recently announced that they have increased their Loan to Income (LTI) cap to 6 times income.
They say:
At April Mortgages, we offer longer term fixed rates, without Early Repayment Charges if your client moves home. We will also lower the rate on their mortgage as they pay it off and reduce their debt. It’s a fixed rate, where the rate actually falls.
We think there are lots of borrowers for whom this combination of certainty and flexibility will be well suited.
Their rates are higher than that of the market leading high street banks and building societies, but they can also lend more than the other lenders.
Another lender who might be able to help is Teachers Building Society.
They recently circulated a case study where a Pilot had built their own home and needed to borrow 6 times their income to repay the loans they used to build the property. They were able to use their salary plus their allowances, their partners income and income from a rental property. They split the mortgage on part repayment and part interest only. This is obviously very specific and complex and not something you see every day.
How much can the high street lenders lend?
One mortgage product stands out for its flexibility, and I recommend it frequently to my clients. Nationwide's Helping Hand mortgage is designed specifically for employed first-time buyers, allowing them to borrow up to 5.5 times their income.
To qualify as a first-time buyer for this product, you simply need to have been mortgage-free for the past three years. This includes any UK or overseas mortgages. Even if you owned a property previously but have not had a mortgage for at least three years, you may still be eligible.
Unfortunately, this product isn't available to self-employed individuals or those who have had a mortgage within the past three years. For these borrowers, most high-street lenders typically offer a maximum loan-to-income ratio of 5 times your income.
What are the benefits of borrowing as much as possible?
Borrowing the maximum amount possible on your mortgage can offer several advantages.
A larger mortgage may allow you to purchase a property that better suits your family's needs, such as a home with more space or a desirable location. Additionally, it can provide the funds necessary for home improvements, like a new kitchen, without resorting to higher-interest unsecured loans.
By maximising your mortgage, you may also be able to pay off existing debts, such as car loans or credit cards, potentially simplifying your financial situation.
However, it's important to carefully consider your long-term financial goals and affordability before making a decision.
What are the disadvantages of borrowing as much as possible?
Borrowing the maximum amount possible on a mortgage can present significant financial risks. Recent interest rate hikes highlight the importance of considering affordability in the long term. If rates continue to rise, could you comfortably manage the increased monthly payments? Additionally, unexpected job changes can impact income. Would you be able to maintain mortgage payments on a single income or a reduced salary?
Borrowing more typically means a longer repayment term, resulting in substantial interest charges over time. Is it wise to prioritise immediate housing preferences over potential long-term financial strain? Furthermore, maximising your initial borrowing could limit your options when it comes time to refinance. Locking yourself into a specific lender for an extended period might restrict your ability to secure more favorable terms in the future.
The best thing to do when thinking about a new mortgage is to have a conversation with a broker like myself as early as possible so you can know how much you can borrow, what that will cost, and what fees are associated with the mortgage. This will allow you to plan and make the right decisions for you and your family.
Just fill out the contact form below, and I'll personally reach out by phone and email within 24 hours to discuss your situation and how much you can borrow.