How much can you borrow?
Your borrowing limit is assessed using affordability criteria which varies between lenders. Affordability and borrowing limits are calculated using criteria such as annual income, annual expenditure, combined with income ratios or multiples. As income ratios differ between lenders. It is possible to obtain a larger mortgage from one lender than another lender using the same income and expenditure details. There isn’t one formula available in the market to determine the exact borrowing limits for all borrowers, from all lenders.
Borrowing limits on residential homeowner mortgages are also confined to maximum loan to values of between 95% and 75% of the properties valuation. This means borrowers require a minimum deposit or minimum equity amount of between 5% and 25%. The maximum LTV and minimum deposit required can be determined by applicants credit profile. Borrowers with a less than average credit file would generally require a larger deposit.
Buy-to-let affordability and borrowing limits are calculated differently than homeowner mortgages. Assessing affordability for buy-to-let mortgages can be a two step process. Some lenders require borrowers to have a minimum combined annual income before being eligible to apply for a buy-to-let mortgage. This minimum income amount varies between lenders. On the other hand some lenders do not require a minimum income.
Borrowing limits are assessed on buy-to-let mortgages according to the markets rental valuation. The property should be self-financing. If the property is not self-financing the majority of lenders will not approve the amount requested. This does not mean your application is declined. It means lenders will consider a smaller loan amount inline with market rental valuations.
During lenders affordability assessment on buy-to-let mortgages. Lenders apply stress rates well above the interest rate being charged. This approach ensures mortgages are approved with huge consideration of potential interest rate increases.
Borrowing limits on buy-to-let mortgages are also confined to maximum loan to values of around 80%. This means borrowers require a minimum deposit or minimum equity amount of 20% to be approved for a mortgage.