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How much can I afford to borrow?

Why salary & deposit affects how big a mortgage you can get

Kit Sproson
Kit Sproson
Updated 31 July 2024

Income and the size of your deposit – or the amount of equity you've already got – both have a fundamental impact on how much money a mortgage lender might allow you to borrow. Lenders also 'stress test' you to see if you'd be able to keep up with repayments if interest rates went up, which means you should be realistic about how much money you hope to borrow.

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Lenders check how much you can afford

Lenders used to just multiply your income by up to five times to work out your maximum mortgage size. Now it's a lot more complicated as the lender has to check the affordability of the mortgage – but in basic terms, this just means whether you can afford the repayments.

But, again, it's still not quite that simple. Lenders must also obey guidelines to check whether a borrower can afford their mortgage repayments, not just at current interest rates, but if interest rates were to go up.

With the cost-of-living crisis eating into people's budgets, proving you could meet repayments if interest rates were even higher than they are now can be hard.

Be prepared for the mortgage 'evaluation'

Mortgage 'evaluations' are tough these days. Some lenders conduct actual interviews with you, while others carry out their assessments behind the scenes based on information you provide. Either way, be prepared for the lender to do a THOROUGH assessment.

Typically lenders will want to know about income and big bills such as utilities and debt, but we've also heard stories about more gruelling interrogations where people are asked how often they eat steak. This may be an extreme example, but lenders will likely check these outgoings:

  • Gym membership
  • Insurances
  • Car costs
  • Entertainment
  • Eating out
  • Weekly shop
  • Childcare
  • School fees
  • Subscriptions (such as Netflix, Spotify)

Ignore the scaremongering. It's not 'they'll tell you to stop eating steak'. They're judging affordability, so if eating out costs push you over the edge it can be a problem. If you can comfortably afford it, it's not.

Even so, it's best to make it as easy for your lender as you can. Take a look at our Boost your mortgage chances guide for tips on how to do this.

Most look at your spending in the three months before you apply for a mortgage, so if you know you're about to apply, try to live sensibly, and well within your means for several months before. Put up as much as you can for the deposit if it's your first mortgage, as borrowing less means less risk for the lender, and hopefully less close scrutiny for your finances.

If you get bonuses or irregular income, unless the amount is guaranteed, lenders may only count half of this towards your annual salary when determining how much you can borrow. This varies between lenders though, so it's best to check with the lender or a broker.

I'm self-employed. How difficult is it to get a mortgage?

If you're self-employed or would struggle to prove your long-term income – perhaps you've worked abroad or you are on a temporary contract – then getting a mortgage is tough.

You'll need cast-iron proof of your income. Be prepared to provide up-to-date evidence to show how your business is faring. You'll also need to show:

  • Business accounts. You need to show preferably three years of accounts – though two can suffice depending on the lender – usually signed off by a chartered accountant.

  • Tax returns. If you can't show business accounts then two or three years' tax returns are the next best option.

You'll be assessed on net profits, not turnover. If this is likely to be complex, using a mortgage broker could help as they'll know which lenders require what evidence.

While this can work for those in established businesses, to be realistic, it could mean those who have recently started working for themselves may not be able to get a mortgage. If you're self-employed and your partner isn't, your mortgage may be calculated using their income only.

For more information, we've got a whole guide that focusses on self-employed mortgages, including what you can do to boost your chances of mortgage acceptance and how to prepare your paperwork.

Can I get an accurate maximum loan figure?

You won't get a fully accurate figure until you apply for a mortgage, but if you speak to a lender or a mortgage broker, they should be able to give you an estimate. In the meantime:

  • Use our calculator to estimate how much mortgage lenders might offer you. The How much can I borrow? calculator is a rough estimate based on your circumstances.

  • Have a search on our Mortgage Best Buys tool. From there, you'll be able to benchmark a top mortgage deal, and then either find a broker or a lender who'll be able to help you with an estimate of how much you could borrow.

You can then try getting an agreement in principle (AIP). An AIP is a mini-application to the lender where it asks for some personal details and carries out a credit check to see if it would be willing to lend to you, subject to further checks. It'll also tell you how much it'll lend you.

If you're approved for the AIP, the battle's half over. It means the lender's looked at you, credit checked you, and on the surface, you're someone that it would lend to. But it is only half the battle, because it's not binding on the lender, or on you.

Quick question

  • Why isn't an agreement in principle binding?

    An AIP only means that the mortgage lender's taken a cursory glance over your finances and your credit record and not seen anything that would mean it would turn you down.

    When it comes to the time to turn an AIP into a full application, the checks a lender undertakes become so much more detailed. It asks for proof of income, it asks for your monthly outgoings and it does a full credit check.

    If the lender finds something in this that it doesn't like, it won't lend to you.

    The AIP might also not be converted into a mortgage offer because the lender doesn't want to lend on the property you're buying. Some won't lend on flats above shops, or properties constructed with unusual material.

Should I take the max I can borrow?

If you're buying, you should find out how much you can borrow before you start house hunting, but be clear on how much you can afford.

If you're remortgaging, work out how much you need before finding out what a lender might be prepared to offer. It's easy to get tempted to up the loan size when the lender is willing, but don't exceed what you think is affordable.

Use the Budget Planner spreadsheet to work out what you can afford to repay. If it shows you can't afford a property, don't ignore it. Only look at properties within your budget and avoid those even a fraction over. If not, you'll either break your resolve or be disappointed.

You'll boost your mortgage chances if you've got at least a 10% deposit

Once you know how much you might be able to borrow, you need to work out what you're able to provide as a deposit (or equity if you're remortgaging).

The minimum deposit you'll normally require to get a mortgage is 5%, though the range of mortgage deals available tends to increase substantially if you've got a 10% deposit or more. Either way, you'll need to give cast-iron proof that you can afford to pay back a mortgage.

As mentioned, the bigger the deposit/equity, the better the mortgage rates will be and the better your chances of being accepted by a lender, as you'll be seen as less of a risk. If you are on the borderline of affordability, having more to put down might help the lender to say yes. In short...

  • 10% gets you a good range of deals and OK rate.
  • 20% to 25% gets you a decent rate.
  • 40% gets you the top rates.

So as a rule of thumb, the more you can save up, the better...

"The bigger your deposit, the cheaper the mortgage deal"

What is loan-to-value (LTV)?

On the best-buy tables and comparison sites, you'll see that lenders talk about the loan-to-value (LTV) ratio. This is the percentage of the property value you're loaned as a mortgage – in other words, the proportion you're borrowing.

To calculate this, simply subtract your deposit/equity as a percentage of the property value from 100%. So if you've a £60,000 deposit on a £300,000 home, that's a 20% deposit. This means you owe 80% – so the LTV is 80%.

Similarly, if you're remortgaging, and you own 20% of the value of your home, you'll need a remortgage deal for the remaining 80% – this is your LTV. Here's an easy table:

LTV EQUALS DEPOSIT/EQUITY OF LTV EQUALS DEPOSIT/EQUITY OF
95% 5% 70% 30%
90% 10% 65% 35%
85% 15% 60% 40%
80% 20% 55% 45%
75% 25% 50% 50%

The reason it's expressed this way is so the same terms can be used for those getting a first mortgage and those who want to remortgage.

It's worth thinking about LTVs for a moment. They're not just affected by the amount you put into a house, but also by house prices. This is crucial – by owning a house, you've invested in an asset where the price moves.

A practical example:

Let's say when you first bought, you had a £30,000 deposit on a £300,000 house – that meant you owed £270,000 at the start. That's an LTV of 90%. After a few years you've paid a little off and now owe £255,000. You're ready to remortgage and the house's value is the same, so your LTV has become 85%.

Yet if the house is now also worth more, say £365,000, then your LTV is around 70% (as it's £255,000 divided by £365,000 multiplied by 100). This means you'll be likely to get a much better remortgage deal. Equally, if the house's value had dropped to £235,000, you'd now owe more than it's worth (negative equity) and you'd be unable to remortgage.

Pumping savings into your mortgage can get you a better rate

Mortgage and remortgage rates are priced in the LTV bands – and the bigger deposit/equity you have, the lower the interest rate will be.

Typically mortgages get much cheaper at 90%, 80%, 75% and 60% LTV, as this table demonstrates:

EQUITY 10% 20% 25% 40%
Interest rate 5.19% 4.83%
 4.69% 4.49%
Loan amount £270,000 £240,000 £225,000 £180,000
Monthly cost £1,608 £1,379 £1,275 £999
Total payments over two years £40,222 £34,460 £31,930 £24,924
The table is for a house value of £300,000 on a two-year purchase fix, capital repayment basis over a 25-year term, including fees. Updated July 2024.

The relationship breaks down below 60% LTV. Someone borrowing 45% of the value of their property will typically pay the same rates as someone borrowing 60%. But if you borrow 61%, you won't be able to get those rates.

If you currently have slightly less than needed to reach one of those LTV boundaries, it's worth scraping together the extra, or – if buying – trying to haggle on the property's purchase price with the seller.

If you're at the top limit of a boundary (say, 75% LTV), finding a little bit extra for the deposit to push you another 0.1% down (for example, to 74.9%) could improve your chances of acceptance. It could also reduce the amount of paperwork the lender wants to see. 

There are two ways to drop an LTV band

The first way to drop an LTV band is very simple.

1. Pump more money in so you can borrow less

Work out how much additional money you would need to put in to drop to a lower interest rate band and see how much interest you'd be saving.

One way you could do this is to overpay your mortgage, where you also get the advantage of paying interest on a smaller amount of debt. And if your LTV falls, it means when it comes to remortgaging, you may be able to get a cheaper deal than if you hadn't overpaid your mortgage.

2. Double-check if your property is now valued higher than when you first took out a mortgage

When you apply for a mortgage, you need to give an estimate of the property's current value. You want to get the top value possible, but it needs to be realistic as the lender will get an independent valuer to check it later in the process. However, if you haven't remortgaged for a while and house prices have increased it could mean that you're now in a lower LTV band as a result (although if house prices have dropped it could have the opposite effect).

Valuers don't just pluck a figure out of the air, and neither should you. Use our Free house price valuations guide to look at houses similar to yours that have sold recently, or maybe even ask a friendly estate agent for their opinion.

Quick question

  • Why are low-deposit mortgages more expensive?

    It's all about risk for the lender. If you're only borrowing 60% of the property's value, then the lender will be pretty assured of getting its cash back if it had to repossess your property and sell it.

    But if you're borrowing 95% of the property's value, the lender is facing more risk. It would only need the property to drop by 5% before it'd likely be facing a loss. It can't be assured of making all its money back. This is why the rates for 95% mortgages will be much higher than rates for 60% mortgages – you're paying a premium for risk. 

I've only got a small deposit – what help is there?

If you want to your first home but you're stuck with a low deposit then it can be tougher to get a mortgage. Don't despair though if you've only got a 5% deposit or less and you're struggling to find a mortgage, there are options available. 

Which one is potentially right for you will depend on your situation and whether you're looking to buy now or in the future – and remember it's always best to talk your situation through with a broker.

  • Boost your deposit with a Lifetime ISA. Anybody between 18 and 39 can open a Lifetime ISA, where you can save up to £4,000 a year, with the state adding a bonus of up to £1,000 a year too.
  • Explore shared ownership. Here you buy a share of a property – typically between 25% and 75% – and pay rent on rent on the share you don't own. You'll also have the option to purchase the remaining share. See our Shared ownership guide.
  • Check if you qualify for First Homes. Some first-time buyers can get between a 30 and 50% discount off the price of a new-build home – meaning you might not need as big a deposit to get onto the property ladder. See our First Homes scheme guide.

  • 95% mortgages. For a couple of years now, the Government has been encouraging lenders to offer more 95% mortgages to those with a 5% deposit. Read more about this in our Mortgage guarantee scheme guide.
  • 100% no-deposit mortgage. Last year, Skipton Building Society launched the UK's first 100% no-deposit mortgage since 2008. It's aimed at renters who are struggling to save for a deposit and doesn't require the backing of a guarantor – though you'll need to have paid your rent in full and on time for the past 12 months.

    The scheme's open to first-time buyers with no or a small deposit (less than 5%) and you'll need to be willing to fix your mortgage for five years. You can't be buying a new-build flat.

    One of the catches is that you can only borrow the equivalent of, or less than, what you pay on rent each month. And be very mindful that the interest rate on Skipton 100% mortgage is much more expensive than on mortgages where you've got a 5%, 10% or 20% deposit.

    You can read more about how Skipton's 100% mortgage works – including the risks involved – in our Skipton 100% mortgage news story.

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