Earning £120,000 per year places you in a strong financial position when purchasing a home, but the amount you can borrow depends on several factors beyond your salary. Lenders consider elements such as your deposit size, credit score, and overall financial commitments when determining mortgage eligibility.
In this guide, we will explore how much you might be able to borrow, key factors affecting your mortgage approval, and strategies to increase your borrowing power.
How Much Can You Borrow on a £120,000 Salary?
Lenders in the UK typically use an income multiple ranging from 3.5 to 5 times annual earnings to determine mortgage affordability.
- 3.5x salary: £420,000
- 4x salary: £480,000
- 4.5x salary: £540,000
- 5x salary: £600,000 (available with select lenders)
While these figures provide a guideline, the final amount depends on creditworthiness, debt levels, and lender-specific affordability checks.
Key Factors That Influence Mortgage Affordability
Mortgage approval is based on more than just income. Below are some of the most important considerations that affect how much you can borrow:
1. Debt-to-Income Ratio
Lenders will assess your existing debts, including credit cards, car finance, and personal loans. A lower debt-to-income ratio improves your borrowing potential.
2. Credit Score and Financial History
Your credit score affects both the mortgage amount you qualify for and the interest rates offered. A high credit score increases your chances of securing a favourable mortgage deal.
3. Living Expenses and Monthly Outgoings
Lenders evaluate your monthly expenditures, such as bills, insurance, and discretionary spending, to determine if mortgage payments are manageable within your financial lifestyle.
4. Deposit Size and Loan-to-Value (LTV) Ratio
A larger deposit lowers your Loan-to-Value (LTV) ratio, reducing lender risk and potentially securing lower interest rates and better repayment terms.
5. Employment Stability and Income Verification
Lenders prefer applicants with consistent employment and verifiable earnings. If you are self-employed, you may need to provide two years of tax returns and financial statements.
Example Scenario: Buying a Home on a £120,000 Salary
If you earn £120,000 annually, have a 10% deposit, and minimal outstanding debts, your potential home affordability could look like this:
- Loan amount (4.5x salary): £540,000
- Deposit (10% of property price): £60,000
- Potential home price: £600,000
Lenders may adjust borrowing limits based on affordability assessments and financial obligations.
How Your Deposit Affects Mortgage Affordability
The size of your deposit has a significant impact on mortgage terms and lender options:
- 5% Deposit (£30,000) – Limited mortgage products, higher interest rates.
- 10% Deposit (£60,000) – More lender options and lower monthly repayments.
- 20%+ Deposit (£120,000+) – Best mortgage deals with lowest interest rates and overall borrowing costs.
A higher deposit results in a lower Loan-to-Value (LTV) ratio, making mortgage approval easier and reducing financial risks.
Government Schemes for Homebuyers
If you are struggling to save a deposit, there are government-backed initiatives that can help you get on the property ladder:
- Help to Buy Equity Loan – Provides a 20% loan (40% in London) for new-build homes with just a 5% deposit.
- Shared Ownership – Allows buyers to purchase part of a home and rent the remaining portion, with an option to increase ownership over time.
- First Homes Scheme – Offers 30-50% discounts on selected properties for first-time buyers and key workers.
These schemes reduce upfront costs and improve home affordability.
Ways to Increase Your Borrowing Power
If you want to qualify for a higher mortgage amount or better repayment terms, consider these steps:
- Lower Outstanding Debts – Reducing your liabilities improves your borrowing potential.
- Improve Your Credit Score – Maintain on-time payments, check your credit report for errors, and limit new credit applications.
- Save for a Larger Deposit – A bigger deposit reduces your overall borrowing amount and interest rates.
- Apply for a Joint Mortgage – Partnering with a spouse or family member increases combined income and borrowing capacity.
- Consult a Mortgage Broker – A mortgage broker can connect you with lenders offering higher income multiples and flexible terms.
Additional Costs to Consider When Buying a Home
Purchasing a property comes with expenses beyond mortgage repayments. Be sure to budget for:
- Stamp Duty – First-time buyers in England and Northern Ireland pay no Stamp Duty on properties up to £425,000.
- Legal and Conveyancing Fees – Covers property searches, contracts, and ownership transfer.
- Mortgage Arrangement Fees – Some lenders charge processing fees for mortgage setup.
- Survey and Valuation Costs – Ensures the home is valued correctly and structurally sound.
- Insurance and Moving Costs – Includes home insurance, removals, and furnishing expenses.
Proper budgeting ensures a smooth home-buying process with no unexpected financial surprises.
Choosing the Right Mortgage Type
Different mortgage products cater to different financial situations. Common options include:
- Fixed-Rate Mortgage – Locks in an interest rate for a set term, ensuring predictable monthly repayments.
- Tracker Mortgage – Tied to the Bank of England base rate, meaning payments fluctuate based on rate changes.
- Interest-Only Mortgage – Lower initial payments, but requires a repayment strategy for the loan principal.
- Variable-Rate Mortgage – Monthly repayments adjust based on lender rate changes.
Choosing the right mortgage depends on your financial stability and long-term plans.
Final Thoughts: Can You Buy a Home on a £120,000 Salary?
A £120,000 salary provides excellent mortgage affordability, but the actual amount you can borrow depends on factors such as deposit size, existing debts, and lender requirements.
With strong financial planning, a stable income, and a sufficient deposit, you could qualify for a mortgage in the range of £420,000 – £600,000.
For expert mortgage guidance and access to the best mortgage rates, working with a mortgage broker can help you navigate the process and secure the most favorable terms.
