Home Buying Guide: How Much Should You Borrow?

Before looking at properties, you should consult a lender or mortgage adviser as to what your maximum possible loan would be. This will be based on the size of your deposit and how much you earn.

All buyers need to put down a deposit on the property - a mortgage lender will rarely pay the whole price of the property. You should try to put down at least 5 per cent of the value of the home as a deposit, and more if possible. The smaller the deposit you put down, the more your lender will charge you for the extra risk. Most mortgage lenders charge a 'mortgage indemnity guarantee fee' (MIG), or a fee for loaning a higher percentage of the value, on bigger loans. If you do not have enough money for the deposit, for example if your house is not sold yet, it is possible to get a 'bridging loan' from your bank, which will be repayable on the sale of your house.

Lenders will usually lend up to three times the size of your annual income, though some will lend up to four times your income. If you are buying as a couple, this increases to either three times the first income plus one year of the second income, or two-and-a-half times your joint income. Work out which way would allow you a higher loan and find a mortgage with which you can get a joint income allowance which suits you. Your lender may contact your employer to confirm your income, or if you are self-employed and taking out a self-cert deal you may have to supply proof of your income.

The credit crunch that started in 2007 changed the face of mortgage lending. This squeezed the amount banks and lenders could borrow and made them less likely to take risks.

Deals for those with small deposits, such as 100 per cent mortgages, were commonplace prior to 2007 but have become increasingly rare.

The key to successfully gaining a mortgage approval is not only having a large deposit but also being a low risk level in the eyes of lenders. Check your credit score through credit referencing agencies. Make sure any missed payments you may have forgotten about are addressed.

Mortgage Advice

You can find out how much you can borrow using the Home.co.uk Mortgage Advice pages. Or visit the Home.co.uk Mortgages page for a full range of services. Also see our Mortgage Calculator.