You want to buy your first home, so you ask yourself is, “can I actually afford to buy a property?” We think getting on the property ladder is a great idea, but only if you are in a suitable financial position…

How much can I borrow?

  • How much you can borrow from a mortgage company depends upon your yearly income, your debt status, and your current financial commitments such as any existing finance or child-care.
  • Different lenders will lend you different amounts. Some can lend up to five times your salary – but these are maximum figures – if you have significant debt which you are paying back you are likely to be offered less than this.
  • We have teamed up with London & Country mortgage brokers to provide a mortgage calculator to work out how much you can afford to borrow.  Click here to use our mortgage calculator.

Putting down a deposit for a mortgage

o   You also have to have a deposit – essentially pay for some of the loan up front.

o   You will usually have to put down at least 10% of the value of the property. For some mortgages you will have to put down much more. This means that how much you have as a deposit can limit how much you can borrow

o   People get money for the deposit from a range of places:

  • Sale of existing home.
  • Money saved.
  • “The Bank of Mom and Dad” or “The Bank of Gran and Grandad” See this guide on how parents can help their children buy.
  • You might not have to get so much of a deposit together if your parents or relatives will act as a guarantor on your loan. They can insure their child’s mortgage against their earnings, or against part of their own house. But this means they are liable for the whole loan if anything goes wrong
  • Some mortgage companies will lend up to 95% of the cost of the home if you have parental assistance (but be aware that they may wish to take a charge over your parents’ property)
  • See Mortgages made simple for more information on putting down a deposit, our guide on types of mortgages for more detail on the different mortgage options to consider.

Will I be able to cover the monthly mortgage payments?

o   The interest rate you pay will depend on how much deposit you put down.

o   You also have the choice between getting a capital repayment mortgage  or an interest only mortgage – the latter are no longer as readily available as a few years ago.

o   If you are eligible for an interest only mortgage, these are cheaper per month, but you still have to pay back the capital you borrowed at the end of the mortgage – see our guide on dealing with the problems people can encounter with interest only mortgages.

o   A good rule of thumb is that no more than 35% of post-tax income should go on mortgage payments.

o   Remember though that you can use any money you currently spend on rent on mortgage repayments.

How much will the property cost?

When thinking how much you can afford, you don’t just have to pay for the house. There are so many other costs you will have to factor in that can add as much as 15% to the total bill:

  • The biggest is stamp duty, which can add up to 7% of the cost of the property. If you’re a first-time buyer, you are exempt from paying any stamp duty so long as the property costs less than £300,000. For more on Stamp Duty, how much it is and when you pay read our guide
  • If you are selling at the same time, don’t forget to deduct the estate agency fees (typically 1% to 1.5% but they can be higher)
  • Surveys and valuations, solicitor/conveyancer fees, Land Registry fees, removal costs and of course buying all the furniture, white goods and other things for your new home

For more, see The hidden costs of buying a home 

 

What government help is available?

  • Government help is primarily aimed at first time buyers, and those moving into new properties
  • To see what government help is available click here