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So, you have worked tirelessly to save up enough for a deposit on a house or flat. Now you would like to start taking the steps to finding the ideal property. We know it is a daunting time. You just want to know how much you can afford to borrow and what you will be repaying!
Are you keen to make a start in the process but unsure of where exactly to begin? Look no further, as we will gladly take the role of supporting you from start to finish. Read more about our process. If you have questions that need answering, our FAQs page should help you.
Similar to most other questions, there is no straightforward answer to this.
As a general rule, lenders will require at least 10% of the value of the house as a deposit, but there are some that may allow only 5%. Saying that, this would greatly reduce the mortgage products available to you and would lead to higher rates of interest.
However, it is not as simple as that, because there is no guarantee if you have a deposit of 10% of the value of the house, that you can afford to borrow the remaining 90%. Read on for more details.
This is not a straightforward question to answer. There are many more important factors that affect which mortgage is suitable other than the fact you are a first-time buyer. An example of this is your current work situation. If you plan to have a stable income for the foreseeable future you may require a different mortgage to someone with unpredictable earnings.
But fear not, our process is designed to find out all the relevant details about you. Using this, we will then recommend the best mortgage for your needs. Not only this, but we will explain how it works in simple words that you can understand. This way you feel comfortable with the process because you can follow every stage.
Being a first-time buyer does not automatically make it harder for you to get a mortgage. Generally, first-time buyers will find it harder because of their financial situation, mostly due to age. Typically, you are younger than home movers and therefore have a lower salary and less deposit to put down. These are two major factors that decide whether you can get a mortgage.
We will discuss your situation with you in depth and be very honest with you about how much you could afford to borrow. The last thing we would want is for you to find your dream home only to be told you cannot afford it.
Lenders will look at your household income and use a multiplier of between 4 and 5 (often 4.5) to calculate the maximum they would lend to you. Please note that this is a very simple estimate and actual amounts can vary depending on other factors.
For example, if you and your partner earn £30,000 per year then your household income is £60,000 per year. This means that you could borrow approximately £240,000 – £300,000 depending on the lender.
The other main driver behind the amount you could borrow is the Loan to Value (LTV) of your mortgage. This is the ratio of mortgage compared to the value of the property. If you are borrowing £100,000 for a £200,000 property then your LTV would be 50%.
Lenders will generally consider the maximum amount you can borrow to be the LOWEST of the below figures:
Another example to demonstrate this – assume you are making a single application. The property you like is valued at £200,000 and your income is £40,000 per year. The lender you choose uses an income multiple of 4.5 and a maximum LTV of 80%.
Since the lower figure is taken, the maximum this lender would loan to you is £160,000.
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Consilium Asset Management are Independent Financial Advisors (IFA) based in Bristol and are authorised and regulated by the Financial Conduct Authority. More information can be found on the Financial Services Register under Number 469507. Registered Office: Vayre House, Hatters Lane, Chipping Sodbury, Bristol, BS37 6AA.