£40,000 Mortgages

If you’re looking for a £40,000 mortgage, it’s helpful to know in advance how much this will cost you each month, and where to find the best deal. In this article, we’ll look at the cost of borrowing £40,000, what factors can affect the repayments, and how much income you’ll need for a loan of this size.

Monthly repayments on a £40,000 mortgage

The length of the mortgage term and interest rates offered generally have the greatest impact on the cost of your mortgage. This table demonstrates how much these factors would affect your monthly repayments on a typical £40,000 repayment mortgage.

*Please note, interest rates vary from lender to lender and based on your individual circumstances. Typical interest rates at the time of writing are between 2.5% -2.9%*

Use our mortgage repayment calculator to look at other examples using different interest rates and terms than those stated in the table above.

There are a number of other factors that can also influence the cost of your monthly repayments:

Deposit

Providing a larger deposit than the minimum requirement – typically around 5% to 10%, depending on the property’s value – is likely to result in lenders offering you a more competitive interest rate.

The amount of deposit can affect your repayments both directly and indirectly. Of course, the more you contribute in the form of a deposit, the less you will need to borrow overall, therefore reducing the amount you’ll need to repay.

Mortgage type

Whilst the vast majority of residential mortgages tend to be repayment, it is possible to secure an interest-only mortgage. These have much lower monthly payments and are far more commonly used to purchase buy-to-let properties. You’ll need a viable repayment vehicle to repay the full loan at the end of the term, with this option.

There are also smaller differences in cost based on whether you choose a fixed-term or variable interest rate deal. Initial fixed-term deals offer lower introductory interest rates for a number of years (usually between 2 and 10), and you can choose to remortgage at the end of each deal to maintain the lowest rates and ensure you don’t revert to the lender’s standard variable rate (SVR), which is typically higher.

Credit status

Most lenders tend to reserve the more competitive interest rates for applicants with strong credit scores, so your credit status can impact your monthly repayments positively or negatively.

It’s, therefore, a good idea to download your credit reports and check your record prior to making an application.

How much do you need to earn to get a £40,000 mortgage?

Although the majority of mortgage lenders use a multiple of your annual income to determine how much you can borrow – typically, most lenders use between 4 to 4.5 times your annual income – there’s a lot more to their calculations than that simple equation.

However, using this traditional rule of thumb, you would need to earn between £9,000-£10,000.

These days lenders will use a broader perspective, examining each applicant’s financial circumstances when deciding whether to accept and approve your mortgage application.

This table demonstrates how the multiple of your income offered by the lender can impact the size of your loan.

As £40,000 is a relatively small loan for a modern mortgage, the income multiple may be less important than if you were trying to secure a larger loan. If you have a lower income, however, it can be an important factor, and a mortgage broker can help you to find the lender that will offer you the highest multiple available.

If you’re looking for an additional £40,000 to upsize to a larger home, it may be possible to use some of the equity in your current property to remortgage. This could reduce the amount that you need to borrow, or, in the best-case scenario, allow you to upsize without taking on additional borrowing.

Our mortgage affordability calculator will show you what you may be able to borrow, based on your own annual salary:

How a broker can help

There are hundreds of mortgage products and a vast number of lenders on the market, which can make it almost impossible to know which lender is the most suited to your circumstances.

The good news is, whether you’re looking to maximise the size of loan available for your income, or find the most competitive interest rates for your circumstances, the brokers we work with have access to the full market of lenders, and deals that you won’t find on the high street.

If you’re self-employed, have bad credit, or are concerned about meeting any of the other lender criteria, we can match you with an expert in the specific niche of mortgages that you need. Get in touch and we’ll arrange for an advisor to contact you straight away.

What could affect how much you can borrow?

The following aspects of your personal circumstances are usually assessed against each lender’s criteria, and can therefore affect whether you’ll be offered a £40,000 mortgage or not:

• Affordability and Income – Lenders will consider your income alongside your existing outgoings to determine your affordability. If some of your income is non-salary based, for example, bonuses or shift allowances, not all lenders will consider it, and some will only consider 50% of the full amount in their calculations.
• Employment – Lenders are typically looking for stability, and some will therefore assess self-employed income differently, especially if your experience is minimal. Those in professional careers, such as solicitors, sometimes have access to higher income multiples.
• Age – If the mortgage term you’re looking for means it will run well beyond your expected retirement age a lender may be more likely to use your predicted retirement income (which will likely be lower) as a basis for how much you can borrow.
• Property type – Some lenders consider non-standard construction properties, such as thatched cottages or listed buildings, to be riskier. They may, therefore, ask for either a higher deposit or offer a higher interest rate if you’re purchasing certain properties.

Speak to a broker who specialises in lower mortgages

Whatever your circumstances, we can match you with an expert broker who will be able to find you the most suitable, and competitive deal on a £40,000 mortgage. All brokers that we work with are selected based on their knowledge and credentials and offer an initial consultation free of charge.

Simply contact us on 0808 189 0463 or via this form and provide us with as many details about your circumstances and home ownership goals as possible. We’ll introduce you to the most suitable expert immediately for a free initial chat, and you’re under absolutely no obligation, so what do you have to lose?