The Question
I would like to buy my own home in the next couple of years. I am 34 and have been renting in shared housing for a number of years. I have £7,500 saved for a deposit but plan to keep adding more. I currently earn £38,000 a year. How much money does this mean I could potentially borrow and what deposit would I need? If it’s helpful, I live and work in Coventry and properties seem to be averaging £300k in my search zone.
Darren’s Answer
I understand the challenges you face, and you are not alone. The market can be difficult for first-time buyers and saving for a deposit is a challenge in the current economy. In terms of affordability, all lenders are slightly different but generally follow similar principles by looking at a range of factors that form a picture of your overall financial situation. They will look at your total income, the property value and your deposit to assess whether this is affordable for you. Lenders generally lend in the range of three times your annual income to five-and-a-half times. This is based on many factors such as income and credit score. Once your income is considered, lenders will then look at your outgoings to assess affordability, such as:
- Financial agreements (loans, credit cards, hire purchase and overdrafts).
- Property costs (such as utility bills and council tax).
- Work related expenses (car, fuel, insurance, phone and internet costs).
- General household expenditure (food, clothes, childcare and school fees).
Deposit
Most lenders will ask for a minimum of 5% of the property value. The more deposit you can put in, the better the interest rate. I’ve written in What Mortgage previously on tips to help buyers save for a deposit. Please also keep in mind that there will be fees involved (such as legal fees) that you’ll also need to cover in addition to your deposit. Other options a mortgage broker can help you explore include:
- government schemes
- first‑time buyer help, or
- shared ownership to reduce the deposit required
Without completing a full assessment, I wouldn’t be able to give you accurate figures for your current situation, however I would encourage you to speak to a broker as soon as possible. They can guide you through the process and provide what’s called a Decision in Principle, which will let you know how much you can borrow. Before you meet your broker, do have a read of my earlier article on how to prepare for the appointment so that you’re ready with all the information they’ll need to help you find the best possible deal. I wish you all the best in your journey to home ownership.
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
