How much mortgage can you borrow

First of all, let's discuss some basic levels of borrowing: 

 

There are three main types of mortgages available in the UK:  

Interest-only, 25 Year Fixed Term, and Variable Rate. 

 

Interest-Only mortgages are exactly what they sound like - you only pay off the interest on your loan, not the principle. This is good for those who expect to be able to repay their mortgage in the future - typically because they currently have other investments that can cover the principle, but aren't likely to any time soon.  

 

You can also choose a "partial" Interest-Only mortgage, where you pay off a portion of the principle as well as the interest - this is popular with first-time buyers who have saved a large deposit but don't have enough to repay the full amount straight away. 

 

25-year fixed term mortgages are exactly what they sound like - you pay back the principal of your loan over 25 years, with a fixed interest rate for the entire period of your mortgage. These are probably the most popular type of mortgage in the UK - they usually have very low-interest rates, and it is, therefore, easier to keep track of what you owe compared to Variable Rate mortgages. 

Variable Rate mortgages are where the interest rate can change at any time. This means that if you have a Variable Rate mortgage, your repayments could go up or down over time depending on how much interest banks and building societies can charge for loans. 

 

Now we've covered some basics, let's work out how much you could borrow. 

 

Firstly, you need to know all your costs. This includes: 

 

 

Once you've got all of this information, you can work out how much you can borrow. Lenders in the UK typically add up all your costs to give a "Total Debt Servicing Ratio" or TDSR - this is essentially how much money you have to pay off every month when taking into account all your payments, not just your mortgage.