First Time Buyer
What can I afford?
Do I need a deposit?
There are many factors that impact upon your potential borrowing.
1: Your income
Most lenders use a simple formula - they will lend on a multiple of your guaranteed income and may add to that half of any non-guaranteed bonuses or commission.
Buyers are more cautious with first time buyers as they cannot refer to a current mortgage history and existing lender's reference.
Many will lend 3.5 times the salary figure; a few will go to 4 times.
In certain exceptional circumstances it is possible to borrow 5 times or more; most often you will meet a specified requirement such as a professional occupation and your income prospects.
A few lenders try to be a little more practical and use their own affordability calculations which means that in certain situations buyers have been granted higher mortgages than expected.
2: Your credit history.
If you have liabilities - like loans or regular credit card balances - the lender will deduct twelve months' repayments from your salary before calculating how much to lend.
Debt can be a problem. And it will be a greater problem if you have been making lots of late payments - and a serious issue if you have been missing payments. A court judgement against you or an arrangement with creditors may mean no mortgage.
3: Your deposit.
A deposit is not necessary, provided that the total amount you borrow meets the lenders criteria.
But, it will mean a higher rate - you become a greater risk to the lender if you do not have your own stake in the property giving the lender a safety margin if you default!
It is possible to borrow more than the cost of the house;
I do not usually recommend this but there are circumstances that make this a useful option.
You will discover the power of having a deposit — mortgage borrowers with larger deposits get much better rates, and that means lower monthly repayments.
4: More than one person
Of course, where two or more people buy together there will be more income to take into account. However, do not add together all the incomes and multiple by the lender's multiples factor. You will normally be able to borrow more if one person earns £30,000 and the other nil than if they were each earning £15,000. More about sharing
And you may be able to use your parents to support your mortgage- they may be able to help you with a deposit, some lenders will allow them to be a party to your mortgage calculation if they don't have much borrowing of their own ... or they may wish to buy the house with you.
There are lenders will allow up to four friends to share but there are real pitfalls in doing this.
5: Shared ownership
This is an official arrangement with housing associations. You do not need a deposit but just buy a share in the property and the association owns the rest and rents their portion to you. More about shared ownership
- I own and am planning to move home — click here
- I am staying put but need review my mortgage — click here
- I have financial problems and need advice — click here
- I am retired and would like cash from my house — click here
- Why should I take advice — click here
What can I afford? Do I need a deposit - what are the implications of not using a deposit? Who do I need, what steps must I take, what are the pitfalls? What is the difference between fixed, discount, tracker, capped - and all the other - mortgage types? Can't I just arrange the mortgage myself? Does it matter that I have quite a lot of debt? What are the options if I share?
