This is by far the most common question that is posed to us at the beginning of any mortgage meeting.

Many years ago, you may recall banks and building societies using a simple calculation when assessing your borrowing capacity. It was typically 3 times the main earners annual gross income and once the second applicant where applicable.

There was an element of flexibility as they would also consider two and a half times joint incomes if this worked out better for any prospective applicants.

Whilst this was basic (and certainly made our lives simpler) it really wasn’t detailed enough to establish a true picture of someone’s affordability.

This area of the mortgage market was reviewed, and it was decided that factors like age, dependents, financial commitments etc. became part of the calculation.

Another factor lenders consider is how much they have in their coffers at any one time and if they are running low then they can restrict how generous they are until such time that they replenish their funds.

What never ceases to surprise us at Compass is how different a clients borrowing capacity can vary between the different lenders.

This can run to several tens of thousands of Pounds more or less depending on who you go to.

In addition, lenders take a different view on how much of a client’s bonus, commission or overtime they will use when calculating their maximum borrowing capacity.

Because of this, clients that look at this themselves can quite often enter incorrect details onto a lenders affordability calculator only to discover when applying for a mortgage direct, that they can’t borrow quite as much as they anticipated.

Finally, all of this is subject to submitting an agreement or decision in principle to a lender where they run a credit check to establish your credit score before confirming the definitive figure they are prepared to lend.

Credit scoring in itself is a whole subject which I can cover at another time.
So, as always, the moral of the story is to employ the services of a broker who can hold your hand through the maze and come up with the best scenario for you.

If you’d like to establish how much you are likely to be able to borrow then please get in touch and one of our advisers will be only too pleased to help you.