Before you calculate how much a house will cost, you need to know how much you can borrow. We all have a dream house. However, since the financial crash in 2009, new laws set by the UK’s Financial Conduct Authority (or FCA) mean that in most cases, banks will only be able to lend you up to 4.5 times your income. This can vary depending on a number of factors such as your credit score or if you’re buying with another person.
Most banks will offer a mortgage calculator tool. This allows you to input your income with other financial information to figure out the maximum that you can borrow.
Mortgage calculators will often use something called a “soft credit search”. These will not impact your credit score which is important if you are looking to borrow money. A better credit score can lead to better rates when taking out a loan - making it cheaper in the long run. It’s best to check that the calculator you are using only involves a soft search. Some may leave a hard search on your report, and if too many of these are used in a short space of time, you may end up affecting your credit score.
Online calculators are not the only way to find out how much you can borrow for a house. You can also use a mortgage advisor to work out this amount for you. However, some advisors can only offer certain products or providers when comparing deals. In order to see all of the offers available on the market, you’ll need to make sure you go with an Independent Mortgage Advisor. If you’re unsure if an advisor is independent or not, make sure to ask as they are legally required to tell you.
Whatever method you choose will give you an estimate on how much a bank is willing to lend you. This means you can now work out how much of a deposit you want to put down.