How Much Can I Borrow?

When looking to buy your first the question always is, how much can I borrow? Typically, people aim to buy the best property within their budget, as an expense they can afford to maintain without being overstretched.

Things to consider:

When purchasing a property we advise to consider the following:

• How much your basic monthly expenses are.

• Your income – how much you earn, job security and any prospects of promotions.

• The current financial market, more importantly house prices and mortgage rates.

• How large of a debt are you prepared to acquire.

• Your safety net – remember, default on mortgage payments can result in losing your property.

• The argument of whether you would rather have a larger house with less disposable cash or vice versa.

We hope the above guide will be able to be a good starting point of things to consider. If you are having difficulties, please contact us. It is important to be careful to ensure you are able to maintain your ideal lifestyle without financially stretching yourself.

Mortgage calculators

Most lenders have mortgage calculators which provide an approximate figure for how much you may borrow based on your income and estimate your monthly mortgage expenses. Whilst they provide an indication we advice that you speak to a mortgage broker and not rely upon the results of the calculator.

How much is my deposit?

In working out how much your deposit is, begin by working out your monthly budget and how much disposal cash you have left over for monthly payments. This will then depend on your current capital and how much you can borrow from the lender.

What can my deposit consist of?

• Your current savings, If you are saving for a house, you may wish to consider a Lifetime ISA

• Financial support from family. Please see our guide on gifted deposits.

• Funds from the sale of your existing home, or remortgage.

• Government schemes. See What help can I get from the government?

Once the above has been calculated, deduct any costs associated with purchasing your home, this will also extend to the costs of moving into and improving the property. Ensure this figure includes your safety net as you will need money for emergencies once you have moved in.

How much mortgage can I afford?

Once you have worked out the size of your deposit, the below will need to be considered to workout how much you are eligible to borrow:

• The size of your deposit. Typically, most deposits are 10%. However, there are many government schemes when buying a new build such as Help to Buy and Deposit Unlock.

• Debts? Do you have any outstanding debt with lenders? (e.g. bank loans, credit card debts).

• Your income. Certain banks can lend up to five times your salary, although these are the maximum figures in most offers.

• Stability of your income. Lenders will usually only provide a minimal mortgage for those who have unpredictable incomes. These are challenges you may face if you are a new business owner.

Costs to budget for

There are additional costs involved with buying a house that you need to factor in your budget such as:

• The total purchase cost. On top of the house price, you may have to pay Stamp Duty, conveyancing fees, surveying and mortgage fees etc, which can all add up.

• If you have a related sale.

• Estate agent fees.

• Monthly mortgage payments – these should usually not exceed 35% of your take home pay.

• Furnishing your new home and any necessary building works.

• Bills – such as council tax, water or insurance – that you are currently not paying? These can add up to thousands of pounds a year.

• Interest rates? You will need to be prepared for this, if you cannot afford an increase in mortgage rates you need a fixed rate mortgage which is typically more pricier.

• Please consider scenarios such as starting a family or losing your job when looking to purchase a property.

How do I get a mortgage?

For everything you need to help you understand what to consider and how to get a mortgage, read our guide.

If you require assistance with getting a mortgage, please contact us and one of our partners will be able to assist.

What should I do if the lender refuses to give me a big enough mortgage?

If your mortgage application has been rejected by several lenders, it is an indication that they do not believe it is affordable. Although this may be frustrating, it acts as a barrier to prevent you from incurring financial hardship in the future.

We recommend you re-consider your options and if you still wish to purchase a property, perhaps find a property more accustomed to your budget.