Can I afford to buy a home?
You want to buy a home, and the first question you’ll probably ask yourself is, “can I afford it?” 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 annual income, debt levels, and fixed outgoings like child-care
- Different banks will lend you different amounts. Some banks can lend up to five times your annual 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.
Putting down a deposit for a mortgage
- You also have to put down a deposit – that is, pay for some of the house up front
- 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
- People get money for the deposit from a range of places:
- Sale of current home
- “Bank of Mum and Dad” or “Bank of Grandma and Grandpa” See our 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 First time buyer mortgages and 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?
- The interest rate you pay will depend on how much deposit you put down
- 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
- 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.
- A good rule of thumb is that no more than 35 per cent of post-tax income should go on mortgage payments
- 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 many other buying costs you will have to fork out for, that can add as much as 15% to the total bill:
- Often the biggest cost is stamp duty. Until March 31st, 2021, in England and Northern Ireland from July 8th, 2020 there is no stamp duty on properties valued up to £500,000, in Scotland from 15th July no stamp duty up to £250,000, and in Wales from 27th July, no stamp duty up to £180,000 if this is the only property you own. To calculate exactly how much stamp duty you will need to pay, use our free stamp duty calculator.
- 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/conveyancing 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
- Read our overview to government schemes to help first time buyers
- First time buyer mortgages
- The HOA Step-By-Step Guide to Buying a Home
- How much can I afford?
- What is Build to Rent?
- Top tips: How to save for a deposit
- How to improve your credit rating before getting a mortgage
- How the government can help you buy a home. An overview of schemes
- The legal side of buying a home explained