Your individual borrowing capacity depends on a range of factors, including your income, financial commitments, credit history and deposit size.
Typically, lenders may allow you to borrow around 4.5 to 5.5 times single or joint income, with deductions then made for credit commitments, other financial commitments and the number of child or adult dependants you have.
A small number of lenders may potentially lend up to 6 or even 6.5 times income for applicants in certain higher-paid professions, such as solicitors, dentists and doctors.
Several lenders accept mortgage applications from limited company directors and shareholders provided they have a minimum of one year's limited company accounts covering a full twelve-month trading period.
However, if you only have one year's trading, you may require a larger deposit of 10% to 20%.
With two years' company accounts, the vast majority of lenders become available, subject to your credit history, borrowing requirements and personal circumstances.
Yes, you can use net profits for a mortgage application, but only with those lenders who assess affordability via a combination of salary and share of net profit (after corporation tax). Or with a few lenders, pre-tax profit.
For example, if your salary is £12570 and net profit after tax for the most recent year company accounts is £50,000, then usable income for mortgage assessment is £62570. This assumes you are a 100% shareholder.
Yes, contractors can absolutely get a mortgage. In fact, with sufficient income and relevant experience in a previous employed or self-employed role, some lenders will consider applications from contractors with less than one year's contracting history, including contractors who operate through their own limited company.
In many cases, contractors are treated similarly to employed applicants for mortgage purposes, even if they are technically self-employed and pay their own tax. This can allow them to bypass the usual requirement for one to two years of trading history.
Yes, a larger deposit can increase borrowing because a lower loan-to-value ratio reduces the lender's risk.
However, maximum borrowing is determined not just by your income, deposit size and existing financial commitments, but also by the lender's loan-to-income limits, which are typically around 4.5 to 5.5 times single or joint income.
Banks and building societies may also cap their maximum loan-to-value at certain borrowing thresholds.
For example, at 90% loan-to-value, a lender may have a maximum loan size of £500,000. So even if your income and the lender's loan-to-income policy suggest you could borrow more, the loan size may still be capped at £500,000.
