Buying your first home is a huge step, and one of the first questions on every first-time buyer's mind is: "How much can I actually borrow?" Understanding this is crucial for setting a realistic budget and kick-starting your property search.

Gone are the days when lenders simply multiplied your income by a set figure. Today, mortgage affordability assessments are much more comprehensive, designed to ensure your mortgage is sustainable for you in the long term, even if circumstances change.

This guide will break down the key factors lenders assess to determine your borrowing power as a first-time buyer.

Beyond income multiples: What lenders really look at

While your income is a significant factor, lenders consider a wide array of details to paint a full picture of your financial health. They want to be confident you can comfortably afford your monthly repayments, not just now, but throughout the mortgage term.

Here are the primary factors that influence how much you can borrow:

1. Your income and employment status

Your income is naturally central to affordability. Lenders will look at your total household income, including not just your basic salary but also:

• Basic salary: This is your primary, most stable income source.
• Additional income: Many lenders will consider a percentage of regular overtime, bonuses, commission, and even certain benefits or rental income. However, policies vary, with some requiring a consistent track record (e.g., 1-2 years) to include these.
• Self-employment: If you're self-employed, lenders will typically assess your income based on your last 2-3 years of certified accounts or tax returns (SA302s/Tax Year Overviews).
• Employment stability: Lenders prefer consistent employment history. Frequent job changes or being on a probationary period can sometimes impact the amount you can borrow or the lenders available to you.

Income multiples as a guide: While lenders don't just use multiples anymore, you'll still hear figures like 4 to 4.5 times your income as a common guideline. Some lenders may offer up to 5 times, or even 6 times your income in specific circumstances (e.g., for certain high-earning professions, larger deposits, or very clean credit histories). These are maximums and are heavily influenced by all the other factors below.

2. Your financial commitments & outgoings

This is where the "affordability assessment" goes beyond just income. Lenders will meticulously review your regular expenditures to determine your disposable income – what's left after all your essential (and sometimes non-essential) bills are paid.

They'll typically consider:

• Existing debts: This includes credit card balances, personal loans, car finance agreements, student loans, and overdrafts. High levels of outstanding debt significantly reduce your borrowing capacity.
• Household bills: Council tax, utility bills (gas, electricity, water), broadband, and phone contracts.
• Living expenses: Lenders will often use national statistics and your bank statements to assess typical spending on groceries, travel costs, childcare expenses, and sometimes even lifestyle costs like gym memberships, entertainment, and subscriptions.
• Other regular payments: Pension contributions and any other deductions from your salary.
• Property-specific costs: For leasehold properties, this includes ground rent and service charges.
• Your deposit size: The amount of deposit you have available directly impacts your Loan-to-Value (LTV) ratio (the percentage of the property's value you're borrowing). A larger deposit means a lower LTV, which can:
  • Reduce the risk for the lender, potentially allowing them to offer you a larger loan.
  • Unlock access to more competitive interest rates and a wider range of mortgage products.

3. Your credit history

Your credit history is a vital indicator of your financial responsibility. Lenders will perform a credit check to see how you've managed credit in the past. They're looking for:

• Payment history: A track record of making payments on time for credit cards, loans, and bills.
• Credit utilisation: How much of your available credit you are using.
• Credit accounts: The number and types of credit accounts you have.
• Adverse credit:
  Any missed payments, defaults, County Court Judgements (CCJs), or bankruptcies will significantly impact your ability to borrow and the rates you're offered.

A strong, clean credit report demonstrates you're a reliable borrower, which can improve your chances of approval and access to better deals.

4. Your age and the mortgage term

Your age plays a role in determining the maximum length of your mortgage term.

• Maximum term: Most lenders have a maximum age at the end of the mortgage term (e.g., 75 or 80). If you're older, this can shorten the available term, which in turn increases your monthly repayments and can reduce the total amount you can borrow, as the loan needs to be repaid faster.
• Future income: If the mortgage extends into your retirement, lenders will want to see evidence of your projected retirement income to ensure ongoing affordability.

5. Number of dependants

While not an income-reducing factor, the number of financial dependants (not just children, but anyone you financially support) impacts your household's disposable income. Lenders factor this into their affordability calculations, as more dependants typically mean higher essential outgoings.

Why lender rules differ

It's important to remember that each lender has its own unique set of criteria and calculations. What one lender might offer you could differ from another, even with the same financial profile. This is why:

• Some may be more flexible with certain income types (e.g., bonuses, self-employment).
• Some might have different thresholds for debt-to-income ratios.
• Some may specialise in certain types of borrowers, including first-time buyers with specific circumstances.

Getting an accurate idea of what you could borrow

Calculating what you can borrow for a mortgage is complex, especially for first-time buyers navigating the market for the first time. Relying solely on online calculators, while a good starting point, won't give you a definitive answer tailored to your unique situation.

To get an accurate idea of what you could borrow, why not reach out today? Our expert advisors will review your individual circumstances – considering all your income, outgoings, and personal factors – and provide you with a precise and personalised guide to your borrowing power. This will empower you to house hunt with confidence.