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. We cover typical deposit amounts needed, how much you can borrow given your income and other buying costs to factor in.
How much can I borrow to buy a home?
- Being able to afford to buy a home often depends on how much you can borrow from a mortgage company. The amount you can borrow 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.
What deposit do I need buy a home?
- When you are working out whether or not you can afford to buy a home, you also have to plan for the deposit – that is, pay for some of the house up front.
- You will usually need a deposit of at least 10% of the value of the property. For some mortgages you will have to put down more. This means that how much you have as a deposit can limit how much you can borrow.
- The government have recently introduced the new Mortgage Guarantee scheme that allows you to get a mortgage with just a 5% deposit. The 95% mortgage scheme will run for 18 months until December 2022. It applies to all types of properties (new build and old) that cost less than £600,000 and both first-time buyers and existing homeowners are eligible. You must have a regular income, a good credit rating and show that you can afford the monthly mortgage repayments.
- 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
- Gifted deposits are one popular way relatives can help
- 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. Find out more about guarantor mortgages, like Barclays Family Springboard
- Some mortgage companies will also 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 deposit requirements.
Will I be able to afford the monthly mortgage payments?
- The interest rate you pay on your mortgage will depend on how much deposit you put down.
- You also have the choice between a fixed rate or variable rate mortgage and the term of the mortgage which affect your monthly repayments. See our guide on types of mortgages for more detail on the different mortgage options to consider and how this affect your monthly mortgage payments.
- 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.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
How much will the property cost?
When thinking if you can afford to buy a home, you don’t just have to pay for the house. There are many other buying costs you will have to budget for, that can add as much as 10% to the total bill:
- Often the biggest cost is stamp duty. In England and Northern Ireland, no stamp duty will be paid on the first £125,000 from 1st October 2021. First-time buyer relief applies on the first £300,000. In Scotland, there is no stamp duty up to £145,000 with first-time buyer relief up to £175,000, and in Wales, 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%) and other selling costs
- 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
Why your credit rating is important
Your credit rating not only affects whether your mortgage application is successful – it influences how much your monthly repayments will be, too. That’s why it’s essential to improve your credit score before you apply for a mortgage. See how to improve your credit rating before getting a mortgage.
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