What Can you Afford to Buy?

The amount of money a mortgage lender will lend you typically depends on two factors: the amount of money you earn and the amount that you can put down as a deposit.

Income

Your income affects how large a mortgage you can afford. If you are buying on your own, the amount you can borrow is typically 3.5 times your annual income, although some lenders will lend up to 4 or even 5 times your income. Joint applicants typically receive 2.75 to 4.5 times their combined income.

Deposit

The biggest single expense you face when buying a property is the deposit. This minimum amount this will need to be is the difference between the purchase price and the size of mortgage your lender is prepared to grant you. The bigger your deposit the better, but usually, lenders will not lend more than 95% of the valuation of the property, so the minimum deposit you will need is 5%. This means that for a property worth £200,000, you would need to put down a deposit of £10,000. However, depending on your circumstances and the amount you need to borrow, some of the first time buyer products are available with 100% of the value of the home. If you plan to buy at auction, you will need a deposit of at least 10% of your maximum bid price.

Examples

So if you earn £30,000 a year, you could get a mortgage of between £105,000 and £150,000. Assuming you could borrow 95% of the value, this would buy you a property costing between £110,525 and £157,895, for which you would need a deposit of between £5,525 and £7,895.

Joint applicants who each earned £30,000 a year could expect to obtain a mortgage of approximately £165,000 to £270,000. With a 5% deposit, this would buy them a property costing £173,685 to £284,210.