£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 circumstances.

You can use our mortgage repayment calculator to examine other examples using interest rates and terms other than those 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 5% to 10%, depending on the property’s value – will likely 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 as a deposit, the less you will need to borrow overall, 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 several 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 reserve 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 before applying.

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 and 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 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 you need to borrow or, in the best-case scenario, allow you to upsize without 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, making it almost impossible to determine which lender is best suited to your circumstances.

The good news is, whether you’re looking to maximise the size of the 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 you need. Contact us, and we’ll arrange for an advisor to contact you immediately.

What could affect how much you can borrow?

The following aspects of your circumstances are usually assessed against each lender’s criteria and can 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, such as 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 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, riskier. Therefore, they may ask for a higher deposit or offer a higher interest rate if you purchase specific properties.

Speak to a broker who specialises in lower mortgages

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

Contact us on 0330 822 0505 or via this form and provide as many details about your circumstances and home ownership goals as possible. We’ll then introduce you to the most suitable expert for a free initial chat. You’re under absolutely no obligation, so what do you have to lose?