Establishing how much you can borrow is one of the first steps in the homebuying process. But how do you work it out? Jeni Browne helps one of our readers with the calculations
The Question
I would value some guidance please on how to pinpoint the price bracket I should be searching within for my first home. I am hoping to get onto the property ladder in the next year or so, but I am not sure how much I can afford.
I am 32 and buying alone and I have £7,500 saved up so far. I earn £38,000 per year and I don’t have any debt at all, although I do use a credit card, which I pay off monthly.
I am hoping to buy in the Nottingham area and would like a two-bed house. However, I am unable to refine my search as I don’t know how much I would be allowed to borrow on the mortgage. I plan to have saved £15,000 by the time I come to buy but would be happy to wait a bit longer and save more if necessary.
Jeni’s Answer
As a rough guide, lenders will lend up to 4.5x your income which, for you, would mean being able to borrow £171,000.
This amount will vary between the lenders, as they work on affordability calculations, so some could offer a bit less than this, and some a little more, but this is roughly where you should be able to get to.
However, you also need to keep in mind that while a few will lend up to 95% [of the property’s value], most lenders will cap their lending at 90% of the purchase price, so you may need to save up a bit more, depending on how much the property costs.
It’s also advisable to not clear your savings out entirely, but to have some money left to cover you if you hit a tricky patch or have a large unforeseen expense. You also need to be aware of your legal costs, possible survey fees, etc. A mortgage broker will be able to cost these out for you.
Jeni Browne is business development director at Mortgages for Business
You can read more of Jeni’s advice on readers’ residential mortgage questions here. If you are interested in a buy-to-let mortgage, Jeni also writes a Q&A column on this area of the mortgage market, here.
If you have a question you would like to ask Jeni email kate.saines@emap.com
