How to get a bigger Mortgage
In this guide, we will give you 6 tips on how you can get a bigger mortgage and make that dream home a reality.
What this page covers:
Some steps below could help you get a bigger Mortgage, whereas others allow you to budget better for the mortgage term. However firstly it is important to understand how Mortgage Lenders decide on the amount they are willing to lend to residential mortgage applicants.
How Much Can You Borrow?
When you approach a mortgage lender to borrow money, they will always undertake assessments to ensure you can repay the Mortgage and any other payments once your new Mortgage is complete.
For residential mortgages, this process is called an affordability calculation. Now it is important to note that each Lender will have their version of what constitutes as affordable. Below is what they will take into consideration when assessing affordability:
- Amount of Income
- Amount of Debts
- How many dependants in the household
- Credit History
- Debt to Income Ratio
An affordability calculation will allow you to borrow a multiple of your annual salary. Typically, lenders allow you to borrow up to 4.5 times your annual salary, however, there are lenders who allow you to borrow more, we have access to lenders that will allow you to borrow up to 5.5 times your income.
For example, if you earn £35,000 a year, a lender with a 4.5 times calculation will allow you to borrow up to £157,500. A simple way to increase the amount you can borrow is to add your partner to the loan, and if they have usable income and a good credit score, this will automatically increase your borrowing capacity.
6 steps that could help to get you a Bigger Mortgage
1. Consider a Guarantor Mortgage or Joint Borrower Sole Proprietor Mortgage (JBSP)
Using a Guarantor Mortgage or Joint Borrower Sole Proprietor (JBSP) Mortgage can be a reliable way to secure a larger mortgage. With this type of mortgage, you have the option to include the income of a family member or friend, also known as an “Income Booster,” to increase the amount you can borrow. It’s important to note that the income booster will only be considered during the application process and will not be legally tied to the mortgage deeds.
These specialised mortgage options come with their own set of advantages and disadvantages. Pros may include the ability to secure a larger loan amount based on the combined incomes, while cons might involve the potential strain on the relationship between the borrower and the guarantor or income booster.
For more specific information and to fully understand the implications of Guarantor Mortgages or JBSP Mortgages, please visit our dedicated hubs where you can find comprehensive details regarding the application process, legal considerations, and potential risks involved.
2. Increase your income & reduce your Financial Commitments
To be eligible for a larger mortgage, it’s essential to focus on increasing your income and reducing your financial commitments. One effective approach is to consider working overtime, meeting bonus targets, or taking on a second job. Regarding the second job, while some lenders may accept a single month’s payslip as proof of a second job, it’s advisable to aim for three months’ payslips to help you access a broader range of mortgage products offered by various lenders.
Generally, for self-employed individuals, you’ll need to wait for HMRC to publish your next Tax Calculations and Tax Year Overviews before using the increased income we have access to Lenders that will consider Projections from your Accountant.
3. Cancel some of your Commitments and any unused accounts
To improve your chances of getting approved for a bigger mortgage, it’s important to consider your overall spending habits and your income and financial commitments. If you have multiple subscriptions or automatic payments linked to your account, this could affect the amount you can borrow.
So, you will need to consider making Sacrifice to your Sky Membership, Gym Memberships and any other Monthly Subscriptions; every £100 shaved off your monthly expenditure monthly could increase your Borrowing Capacity by £1000s
So, before you apply for a mortgage, it’s a good idea to carefully review your accounts and cancel any no longer necessary subscriptions. However, it’s important to continue paying for any services under contract, as missing payments could harm your credit score.
Remember that it takes 4-6 weeks for your credit file to update.
4. Increase Your Deposit
By increasing your deposit, you can raise your maximum mortgage amount. However, this option is only available if you initially deposit the minimum required amount. For instance, most mainstream mortgage lenders stipulate a minimum deposit of 5% of the purchase price. If you deposit £10,000, your maximum purchase price would be £200,000, and your maximum mortgage amount would be £190,000, regardless of your income and financial commitments. Conversely, if you increase your deposit to £20,000, your maximum purchase price would increase to £400,000, and your maximum mortgage amount would be £380,000.
If possible, you could receive assistance from your parents, family, or friends to increase your deposit. This is known as a Gifted Deposit, and it could help you secure a larger mortgage and better product rates.
5. Extend the Loan Term
Extending the total mortgage term can potentially increase the available mortgage amount and make monthly repayments more manageable. The impact is most significant when the term change is substantial. For instance, increasing the mortgage term from 20 years to 35 years will have a more pronounced effect than an increase from 30 to 35 years. However, it’s important to consider that this extension in the term will result in higher monthly mortgage payments and, ultimately, a greater total mortgage amount paid over the term.
6. Improve Your Credit Score
As already discussed in many articles, Credit scoring is integral to the mortgage application process. You may find a not-so-good credit score prevents you from accessing the whole of the Mortgage Market.
For example, a high street lender may offer you 5 times your annual income for a mortgage but have strict credit scoring criteria that prevent you from applying to them. So, check your credit score and File at Experian, Equifax and TransUnion credit agencies.
Once you have access to your credit file, you must start work on improving it immediately. Improving your credit score takes a dedicated effort, but all credit reference agencies provide actionable steps to take to improve your score. Simple things like…
- Registering to Vote
- Cancelling any unused Credit Card Accounts
- Check your Credit File for any mistakes (they do happen)
can improve your credit score.
Remember that it takes 4-6 weeks for your credit file to update.
What Type of Income Do Lenders Accept?
Finding the right lender who accepts all your income can significantly impact the amount you can borrow, potentially making the difference between securing your dream home or not.
All Lenders have varying rules regarding acceptable income, with some being more flexible and allowing pension, benefit income or rental income. Some lenders ask for a minimum of 2 years of accounts if you are self-employed, while some lenders will happily take 1-year of accounts.
Understanding these differences can help you navigate the borrowing process more effectively. A competent Mortgage Broker can help you find the right Lender.
Other Factors Lenders Consider
It’s important to consider the following points:
- Lenders consider additional expenses when calculating affordability, which might surprise you. For instance, some lenders will subtract child maintenance or spousal support from your affordability assessment.
- Some lenders consider your current rental payment in their affordability calculation, even though these payments will stop once you complete your purchase. Additionally, how you manage your bank account, such as using your overdraft, can significantly impact the amount you can borrow. Some lenders may reject a mortgage application if you overuse use your overdraft.
Parents have several options for financially helping their children purchase a property. Each method has its own implications for both the parents and children, so it’s essential to understand all the options fully:
How a mortgage broker can help you get a bigger mortgage
If you handle your mortgage search and application independently (DIY), finding a lender that aligns with your specific needs may be challenging. With over 100 regulated lenders in the market, each offering thousands of products, it can be beneficial to seek assistance finding the most suitable mortgage.
A mortgage broker’s primary role is to complete a financial questionnaire and utilise the information to find the best lender for your specific situation. Working with a mortgage broker increases the likelihood of connecting with a lender who can offer the amount you need for your dream home at the most favourable terms.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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