Calculating roughly how much you can borrow is simpler than most lenders and brokers like to admit.
The amount you can borrow will be the lowest of:
- 95% LTV
- 4.5 - 5x gross income
- Net free income
Although there are 100% LTV mortgages in the market, they account for less than 1% of all the mortgage products available and are usually only available to the very best applicants who have other assets that they could use to pay down the mortgage.
When calculating how much you can borrow, working out how much you could borrow with a 5% deposit is a good starting point.
4.5 to 5x earnings
Although lenders will calculate what they believe you can affordably borrow, they also have fixed rules that prevent you from ever borrowing more than between 4.5x your salary.
When you apply for a mortgage, you will be asked a lot of questions about your living expenses and may have to provide bank statements to back up any claims you make. From this and other data, lenders will calculate how much "net free" (spare) income you have before your mortgage each month.
Lenders will then look at the goto rate on the mortgage, add approximately 3% to that (to ensure you can endure interest rates being hiked). They will then recalculate your monthly payments, if you can afford them, you won't breach the hard rules on salary salary multiples and you have sufficient money for your deposit, you are likely to be accepted for that amount of borrowing.