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What mortgage can I afford

Jan 03, 2024
what mortgage can I afford
Buying a new home is a long-term financial commitment, and knowing how much you can afford is vital to avoid worrying later. The mortgage you can afford depends on several factors, including your income and outgoings. If you’re unsure how mortgages work and what’s best for your circumstances, this guide can help.

Learn about what lenders consider to determine affordability and the different mortgage types below.

How do mortgage lenders determine affordability?

Some of the things mortgage lenders consider to determine your affordability include:
Credit score
The size of your deposit
Employment status
Other debts

1. Credit score

Your credit score is the first thing lenders will consider when determining your mortgage affordability. This helps them understand how you handle your finances to assess whether you’d be a reliable borrower.

2. Income

Lenders want to know your income, including any bonuses or tax credits. This is so they can offer the best deal for your circumstances. If you’re applying for a mortgage as a couple, they’ll want to check your combined income. 

3. Outgoings

Lenders check how much of your income you spend to evaluate the size of your deposit.

4. The size of your deposit

The size of your deposit is vital in establishing how much you can afford. Generally, the higher the deposit, the more competitive your mortgage rate.

5. Employment status

If self-employed, you must provide two or three years of SA302 tax calculations and the tax year overviews.
Learn more about buying a home when self-employed  in our comprehensive guide.

6. Other debts

Lenders check whether you have any loans or credit cards, which may impact your ability to afford your monthly repayments.
You can use our Mortgage Affordability Calculator  to determine how much you can borrow.

What mortgage types are best for me?

The most common mortgage types include:
  • Fixed-rate mortgage. The interest rate is fixed at a certain amount for a specific period. Once the period ends, you’ll be automatically moved to your lender’s standard variable rate (SVR). 
  • Variable-rate mortgage. Your mortgage lender sets the rate, meaning it could go up or down if they change it. SVRs are normally between 2% and 5% higher than the Bank of England base rate. 
  • Interest-only mortgage. With interest-only mortgages, you only pay back the interest each month. Monthly repayments are often cheaper than a repayment mortgage, but you’ll still owe the full amount. 
  • Discount mortgage. Discount mortgages are offered with a discount on the lender’s standard variable rate, not the Bank of England’s base rate. 
  • Tracker variable-rate mortgage. Monthly payments align with the Bank of England base rate.
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