How To Afford A Bigger Mortgage To Afford Your Dream Home

The house you can afford to buy is ultimately decided by the mortgage you can afford. Or rather the mortgage that you’ll be given, even if you can afford higher monthly instalments. It’s very common for people to buy a smaller first home and work their way up to their dream home over time after moving along in their career and earning more to get a bigger mortgage. Or selling their existing property for a good profit.

How much can I borrow?

Lenders look at a few different things when deciding how much to loan to you. They’ll look at:

• Your credit rating to check you’re a reliable person to loan money to
• Affordability, so your ability to pay back the loan can be impacted by your outgoings and spending. Your lender will ask you about your spending habits and they’ll want to see 3 months of bank statements as proof
• Any existing debts that you may have which may impact being able to pay back a mortgage
• And they’ll also look at your income

As a rule of thumb, most lenders will offer 4.5 times your gross annual income, although they may offer you less if you fall short in some of the other areas. So if your income is around £35,000 it’s likely they’d lend you around £157,500 which isn’t all that much when the average UK house price is over £268,000!

Each application is assessed individually and depends on your scenario. For example, if you’re self employed your income is taken after expenses, so not your gross income.

Some lenders will offer more than 4.5 times your annual income, for example, Habito came out with a mortgage of up to 7 times. But this does come with its own pitfalls, but it might be right for you. It’s always worth comparing various rates online and not just getting a quote from one place. If getting a bigger mortgage is important to you a broker can help you find the lender who will lend you the most money.

The bigger your credit rating is the more choice of lenders you’ll have. And the more lenders will be willing to give as you’re a safer bet. And even if how much you can borrow doesn’t change you’ll probably get a lower interest rate. There are some pretty quick ways of increasing your score including being on the electoral roll and being smart with credit utilisation.

Close unused accounts

This is one way you can increase your credit score, but it’s important enough to go it alone. Mortgage lenders will look at how much credit you have already before deciding how much to lend you. If you have lots of credit cards, credit accounts, or a big overdraft this could impact how much they offer. If you have anything you don’t need to close the account or at least ask for the limit to be reduced.

Look into your employment status

Being a permanent employee versus a temporary one can make a huge difference as you’ve got less risk in your job. This might be something you can apply for in your role, or ask to get a fixed contract as opposed to a zero-hour one to have more guarantee behind your wages.

Standard mortgage terms are around 25 years, but you can lower your monthly repayments by spreading it over longer periods. Most lenders do offer a 35-year mortgage. This can make the mortgage more affordable to you and give you more borrowing power. But always consider that this means your mortgage will take longer to pay off, and you will pay more interest for borrowing for longer.

Save with a Lifetime ISA (LISA)

If you (or someone you’re buying with) is a first-time buyer then make sure you have a lifetime ISA to increase your deposit. You can save up to £4,000 a year into one and the government will add a 25% bonus. This means you could get up to £1,000 free a year just for saving. You will be charged for accessing your LISA outside of buying your first home or your retirement.

Getting a bigger mortgage by reducing debt

Debt has an impact both on how much you can borrow in a mortgage, but it will impact your deposit savings. And mortgage lenders can reduce how much they’ll lend based on how much is outstanding. So clearing off as much as you can before applying for a mortgage will make a big difference.

Types of debt that will be considered include:

• Revolving debt that doesn’t have a fixed number of payments like a credit card
• Secured debt with an asset attached to them such as car loans or other mortgages
• Unsecured debt which doesn’t have assets attached to them such as personal loans

In general, the more debt you have, the less you’ll be able to borrow so pay off as much as you can, even if it eats into some of your savings. But remember student debt isn’t taken into account.

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