Buying a house is probably the single biggest purchase you will ever make, so it’s important to get things right.
This starts with finding the right home for you and making sure you can afford it.
In her first article for the firm, Trainee Solicitor Zoe Burcombe outlines how much money you can borrow based on your income, including what you need for your deposit and how mortgages work.
How do I know if I can afford a house?
If you have a house in mind, but don’t know whether you can afford it, you should first instruct a mortgage broker to work out how much you can afford to borrow, based on your yearly salary.
Lenders will usually lend around four to four and a half times your salary. So, if you earn £25,000 a year a lender could give you anywhere from £100,000 to £112,500 towards your property.
If you’re purchasing the property with someone else, they may also be able to borrow 4-4.5x their salary.
Once you know how much you can afford to borrow, you can then use a mortgage calculator, such as MoneyHelper’s one, to calculate your monthly mortgage payment.
Can you afford mortgage payments?
You should also work out your monthly net income, to make sure that you can afford to pay out for the mortgage every month.
Make sure to bear in mind any outgoings such as household bills, living costs, insurance, travel, phone bills, pension payments and anything else.
If you’re buying with a partner, family member, friend etc. then make sure to factor in their net income in addition to yours in any calculations.
What are the current mortgage rates?
Mortgage rates are forever changing and are often different from one day to another! They also vary from lender to lender.
Because mortgage rates change so frequently, it’s a good idea to check them often; but if you instruct a mortgage broker, they will do this for you.
What are the different types of mortgages available?
The most common types of mortgages are Fixed Rate and Variable Rate.
On a fixed rate, the interest you pay will stay the same for a specified number of years. This is usually 2 years or 5 years.
On a variable rate, the interest rate can change over time in accordance with the base rate at the time. So, the interest you pay in January may be higher than February, for example.
What is better fixed or variable rate?
Where interest rates are down, a variable rate mortgage might be better as it would decrease along with the base rate. However, if interest rates rise you could end up paying more than you would on the fixed rate.
For this reason, variable rate mortgages are often considered more of a risky option than the fixed rate route.
To find out which type of mortgage would work best for you, contact a mortgage advisor.
If you’re looking to get a buy-to-let property, you can read our pros and cons guide here.
Will mortgage rates reduce in 2024?
Interest rates were on the rise, with mortgage rates following a similar trend. However, at the time of writing, rates have stabilised.
Whether mortgage rates will reduce in 2024 is hard to say, many have predicted rates returning to pre-pandemic levels in the near future, but no-one knows when for sure.
How much deposit do you need for a house?
You usually need 10% of the purchase price as a deposit but some lenders offer 95% mortgages meaning you would only need a 5% deposit. You can put down as much money as a deposit as you wish, however.
As a general rule, the higher your deposit the better as the more you pay ‘up front’, the more likely you are to get a mortgage and the lower your interest rate will be.
This is because of something called Loan to Value (LTV) which is the amount you've borrowed as a percentage of the property's price. So, the lower your LTV, the lower your interest rate!
Although possible to borrow 95% of the purchase price, most lenders don’t hand these out easily as it is too risky for them and means a higher interest rate for you.
What are the best ways to save for a deposit?
Below you will find my ‘top tips’ to help you save for your first home:
- Cutting back on everyday spending – eating out less and preparing lunches for work (buying lunch everyday really adds up!), going out less, checking your outgoings to see if there are any direct debits you don’t really need;
- Savings accounts – making sure you’re putting money into a savings account with the best interest rate. You may also want to take advantage of a Lifetime ISA which I cover later in this article;
- Reducing your rent – if you can, consider how you can reduce your rent. This might be by moving back home with your parents, moving in with a friend or moving to a shared house where rent is normally cheaper and bills are included;
- Buy with someone – double the deposit and double the mortgage!
Can my parents give me money to buy a house UK?
Yes, parents can gift or loan you money to go towards your home. This is commonly known as using the ‘Bank of Mum and Dad’ and is a method that helps many people, especially first-time buyers, afford a house.
You can find out more about how it works in our dedicated article here.
What are the government schemes that can help me buy a house?
There are some government schemes available that can help you save when buying your first home. Here are the best ones:
Stamp Duty Relief
Eligible first-time buyers can claim relief on Stamp Duty Land Tax (SDLT), an additional tax (similar to VAT) paid upon purchase of a property. First-time buyers purchasing a home that costs:
- £425,000 or less are exempt
- £425,000 - £625,000 - will only pay SDLT on the value above £425,000
You will not be entitled to any relief on properties worth more than £625,000.
For up-to-date exemption information and rates, please visit the Gov.uk website here.
Lifetime ISA
If you’re a first-time buyer you can get a Lifetime ISA (LISA), a savings account which can be used to buy your first home or save for later life.
The Government’s Lifetime ISA allows you to deposit £4,000 into your LISA each year until you’re 50, and the government will add a 25% bonus to these savings up to a maximum of £1,000 a year.
You can use the savings in your LISA towards your purchase if the following apply:
- the purchase price is £450,000 or less,
- you are buying at least 12 months after your first payment into your LISA,
- you use a conveyancer or solicitor to act for you – the LISA provider will pay the funds directly to them,
- you’re buying with a mortgage.
If you’re buying with someone else, they too can use a LISA and benefit from the government bonus, provided you are both first-time buyers and the above conditions are still all met.
Find out more about eligibility and where you can get one here.
I’ve found the right home for me, and I can afford it! What now?
When you know how much you can borrow and have saved enough money for the deposit, you can start viewing properties which fall within your price range.
Once you’ve found the right property for you and have had an offer accepted, there are a few more steps to take before you can put your feet up in your new home.
That’s why we’ve put together a complete guide for purchasing a home from day one to moving day and everything in between. Although it was originally aimed to help first-time buyers, even the most experienced homebuyers have used it as a refresher.
You can download your FREE copy here.
Specialist Conveyancing Solicitors
Our bright and experienced Conveyancing Team is one of the largest in the area, and they would be happy to assist you in the purchase of your home. Please feel free to direct any questions our way.
To get in touch, you can call us on 01202 499255 or fill out the form at the top of this page. We offer a free initial chat for all new clients.
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