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Do Mortgage Income Calculators Work?

Not convinced that a mortgage calculator has given you accurate information? This guide looks at the workings behind a mortgage calculator - and why they're not always reliable.

Do Mortgage Income Calculators Work?

Mortgage calculators are a quick, simple way to get a rough idea about how much you might be able to borrow, or how much a home loan might cost in repayments.

The challenge can be in telling which online tools work, and which are based on paid adverts - and which give the most accurate results!

Here we'll explain the pros and cons of online mortgage calculators, where they can help you, and where the pitfalls lie.

For an accurate idea about how your mortgage income calculations stack up, give us a call on 0330 304 3040, or email the team at [email protected].

Where are Mortgage Income Calculators Available?

We have a range of mortgage calculators on the Revolution Brokers website. Alternatively, you can find lots of resources on financial advisory websites, and bank and building society websites.

Does a Mortgage Calculator Work Out what I Can Borrow?

Yes, a calculator will take your income and use generic calculations to give you an idea about how much you can borrow. The problem here is that the estimates are very rough, and the actual value available could be considerably different.

An online tool is only meant to be indicative, and can't take into account your eligibility - and can sometimes lead to making an application that will automatically be rejected since you don't comply with the lending policies of that particular bank.

How Do UK Mortgage Providers Calculate Affordability Assessments?

What a calculator cannot do is tailor the calculations to the lending criteria of any given provider - and these take into consideration many factors, including:

  • Your income.
  • What sort of employment you are in.
  • Your age.
  • Credit ratings and reports.
  • The type of property you wish to buy.

Typically, a lender will place a maximum of, say, four times your annual salary on the upper limit of what they can lend. In this case, you could borrow up to £100,000 on a salary of £25,000.

However, each lender is different, and while 4.5 times your salary is average, you can sometimes borrow as high as five or even six times your income with the right provider.

Joint mortgages can also significantly increase the amount you can borrow.

How Does my Type of Income Affect my Mortgage Application?

Again, a nuance that an online calculator cannot factorin is around the type of income you earn. Many people might have multiple incomes, or a variable income and not be able to calculate an average salary on the same basis as any given lender.

Income types might include:

  • Earnings based on bonuses or commissions.
  • Being self-employed.
  • Having PAYE employment but being on maternity leave.
  • Working as a contractor or on fixed-term contracts.

While you can input an average into a calculator, this doesn't know how your income is divided between income streams.

For example, some lenders will not include bonuses in calculating what they can offer. Some high street banks might automatically reject newer self-employed businesses if they do not have three years worth of trading accounts.

The only sure-fire way to get an idea about what you can borrow is to consult an experienced brokerwho can carry out independent assessments on your behalf.

How Do Mortgage Calculators Work Out my Averageincome?

As well as a basic salary, income can include all sorts of different elements, such as:

  • Overtime.
  • Employment allowances.
  • Second jobs.
  • Other revenue streams.
  • Commissions.
  • Bonuses.

Some lenders will happily include all of your income into their affordability calculations - others will include 50%, and others none of it at all.

This is why a calculator should never be relied on to make decisions about mortgage lending since they cannot know which lenders are best suited to approve your application based on your income structure.

What Factors Impact my Affordability Calculation on a Mortgage Application?

Your income is one of the many factors that impact your affordability assessment.

Outgoings are also calculated to work out your net disposable income. They can include other loans and debts, paying for dependents, school fees, travel expenses, utility costs and council tax.

If you have multiple debts, and a high debt to income ratio, that can also impact your eligibility. So it is vital to know which lenders can approve an application at your level of borrowing.

Credit history is also a key metric, and the attitude of lenders varies significantly. Some will reject any applicant with any bad credit.

Others will approve an application but limit their offer to lend, usually requiring a higher deposit of at least 25%.

In some cases, a bad credit specialist lender is the best bet, as they have more flexible lending policies and will take a different view on bad credit ratings.

How Can I Calculate the Deposit I Need for my Mortgage?

As with the amount you can borrow, a calculator can give you a rough idea about the usual deposit value you will need.

However, this depends on the lender - and they might require a different level of deposit depending on how your affordability assessment pans out, your credit score, and what sort of property you wish to buy.

If you are buying a low-risk property, and have a clean credit history, you can find products with as little as a 5% deposit requirement, although these are not the norm.

Most lenders will need at least a 10% deposit, with the typical minimum being around 15% to 25% depending on your risk profile.

How do Affordability Calculations work for Buy to Let Mortgages?

With an investment mortgage, lenders will still need to run affordability checks - but these are less dependent on your annual income, and more reliant on the rental income achievable from the property in question.

Lenders will need to see that the anticipated rent will cover the mortgage interest payments by a certain percentage, depending on your taxpayer status (since the higher your tax bracket, the higher a profit margin the rent will need to achieve to be a viable business proposition).

In most cases, buy to let properties need to generate 125% to 170% of the monthly mortgage interest cost to be approved.

Professional Help with UK Mortgage Calculations

While online mortgage calculators are a useful way to gauge what you might borrow, they are not specific enough to give accurate information.

For help with working out what you can borrow, how much you can afford, and which lenders are best placed to approve your application, contact business loan broker on 0330 304 3040, or email the team at [email protected].

As an independent, whole-of-market broker, we have access to every deal and every product and ensure you find the most competitive lending as quickly as possible.

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