plonkee money an english-er's thoughts on personal finance

July 3, 2007

all about mortgages: how much can you borrow

Filed under: house — plonkee @ 5:44 pm

Bank and building societies have loosened their restrictions of late on the amount of money that you can borrow. The rule seems to be that for a standard mortgage you can borrow between 3 and 3.75 times a single salary and you need a deposit of 10%.

If you want to borrow any more than that you will restrict your options, but simple regular mortgages are available for deposits as low as 5% and income multiples up to 5 times your salary. For this you can expect to pay a higher rate of interest or for a small deposit you may need to pay a Higher Lending Charge. Â

Alternatively some lenders will offer 100% mortgages (you have no deposit) or base the amount of money that they will lend you based on what are called affordability criteria. If that doesn’t give you enough money, you can often buy a property jointly with someone else – or indeed a couple of someone elses – or get a guarantor for part of the loan. These non-standard options are less competitive and more expensive, a 100% mortgage will probably be between 0.5% and 1% more than a mortgage with at least a 5% deposit and you’ll also probably have to pay a Higher Lending Charge.

If you can’t demonstrate your income, you can get reasonable rates on a self-certified mortgage. The downside is that you’ll need a hefty deposit – 40% is not uncommon.

In all this talk about how much money you can squeeze out of the bank or building society I haven’t got to the most important point. Its not about how much the bank will let you borrow, its about how much you can afford to borrow. My own personal mortgage rules are to have a 10% deposit to try to ward off negative equity (owing more than the house is worth) and restricting my mortgage repayments to less than 1/3 of my take home pay.

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