When it comes to getting a mortgage, many people assume they know roughly how much they can borrow, often this is based on a quick online calculator or a brief chat with their bank. But what if we told you that you might be able to borrow more than you think?
As mortgage brokers, we see this all the time. Clients come to us believing they’re limited to a certain amount, only to be pleasantly surprised when we find a lender who can offer them a much higher borrowing capacity based on their unique circumstances.
So why does this happen? The answer lies in lender criteria - and that’s exactly why speaking to a broker is so important.
Mortgage Lender Criteria
Not all lenders calculate affordability the same way. Many people think that all lenders follow the same rules when deciding how much you can borrow. But in reality, every lender has their own unique affordability criteria.
For example:
- Income: Some lenders are willing to include overtime, bonuses, and commissions as part of a borrower's income, which can increase the amount they can borrow. Other lenders may only consider a borrower's base salary or have stricter requirements for including additional income.
- Employment: Certain lenders have stricter criteria for self-employed borrowers and may require a longer trading history or more extensive documentation to prove income. Other lenders are more flexible and may consider self-employed borrowers with a shorter trading history.
- Outgoings: Some lenders have strict limits on a borrower's outgoings, such as childcare costs, credit card payments, and other debt obligations. These outgoings can reduce the amount a borrower can afford to repay each month and, consequently, the amount they can borrow. Other lenders take a more flexible approach and may consider a borrower's overall financial situation and ability to manage their outgoings.
- Credit History: Lenders also have different criteria when it comes to a borrower's credit history. Some lenders are more willing to lend to borrowers with a less-than-perfect credit history, while others have stricter requirements.
- Debt-to-Income Ratio: This ratio compares a borrower's total debt obligations to their income. Lenders use this ratio to assess a borrower's ability to manage their debt and make timely payments. Different lenders have different maximum debt-to-income ratios that they will accept.
- Loan-to-Value Ratio: This ratio compares the loan amount to the value of the property being purchased. Lenders use this ratio to assess the risk of the loan. Different lenders have different maximum loan-to-value ratios that they will accept.
Two different lenders could assess the same income and financial profile and come up with completely different loan amounts - sometimes with a £50,000+ difference in what they’ll lend. That’s why limiting yourself to just one lender (especially your current bank) could mean missing out on a much better mortgage offer elsewhere.
How a Mortgage Broker Helps You Borrow More
When you go to a single bank, you’re only getting their lending criteria, which may be more restrictive than others. But as brokers, we:
- Compare multiple lenders to find one that will assess your income most favourably.
- Know which lenders are flexible on things like self-employed income, bonuses, and credit commitments
- Access exclusive deals that aren’t available directly to the public
- Guide you through the home buying process to make it as stress-free as possible.
Instead of guessing or assuming what you can borrow, we give you a clear and accurate picture of your true affordability across multiple lenders.
We’ve seen the situation time and time again, when a new client arrives with a preconceived idea that they won’t be able to afford their perfect home and has been looking at smaller properties or less favourable locations than they would ideally like. When we look at alternative lenders they are often delighted to find that they can widen their property search.
At the end of last year, we had a couple who thought their dream home was out of reach: James and Sarah, a young couple in their early 30s, had been tirelessly searching for a home in their desired area but were struggling with affordability. James was self-employed as a contractor, and Sarah had recently received a promotion with a significant portion of her earnings coming from bonuses. When they approached their bank, they were told that only a fraction of Sarah’s bonuses would be considered and that James’ fluctuating income made him a lending risk. The bank’s mortgage offer was far lower than they needed, forcing them to consider smaller homes in less desirable areas.
Feeling disheartened, they came to us at Calluna Financial for a second opinion. We reviewed their full financial picture and approached lenders who specialise in self-employed income and bonus-heavy salaries. By leveraging our knowledge of the market, we found a lender who considered Sarah’s full bonus history and James' last two years of earnings, rather than averaging out his entire contracting career. As a result, their borrowing power increased by £75,000, allowing them to put an offer on a home they had originally thought was out of their budget. A few months later, they moved into their perfect property - proof that the right mortgage broker can make all the difference!
How Else Can A Mortgage Broker Help?
By speaking to a mortgage broker as early as possible in your property search, you can benefit from their knowledge of the current mortgage market. They will be able to offer you practical advice based on your individual circumstances and help you prepare in advance of making your mortgage application. They will look at your financial position and suggest strategies to take that could increase your borrowing capacity when you come to apply to mortgage lenders.
Example strategies that could potentially increase your borrowing capacity:
- Debt Reduction: Paying off existing debts, such as credit card balances or personal loans, can lower your debt-to-income ratio (DTI). This demonstrates to lenders that you have a greater capacity to manage additional debt, potentially leading to a higher loan approval.
- Credit Score Improvement: Your credit score is a significant factor in determining your loan eligibility and interest rate. Improving your credit score by making timely payments, keeping credit utilisation low, and addressing any errors on your credit report can enhance your borrowing potential.
- Deposit Increase: Saving a larger deposit for your mortgage can reduce the loan-to-value ratio (LTV), making you a less risky borrower in the eyes of lenders. This could result in a higher loan approval or a lower interest rate.
- Income Documentation: Ensuring that all sources of income are accurately documented and verifiable can strengthen your loan application. This includes providing evidence of salary, bonuses, commissions, rental income, or any other consistent income streams.
If you’ve checked with your bank and been told you can’t borrow as much as you’d hoped, don’t give up just yet. Speaking to a mortgage broker could open the door to more borrowing power and better mortgage options.
