How much to borrow
Buying a home is one of the most important financial decisions you will ever have to make. Very few people can afford to buy a home outright, most will require a mortgage to do so.
Anyone over the age of 18 can apply for a mortgage. The maximum a lender will usually allow you to borrow is around three times your annual salary, but this can vary greatly depending on your other financial commitments. If you are applying for a joint mortgage then you will usually be allowed around three times the higher of the two salaries plus one times the other.
How much to borrow
- Remain realistic about how much you can afford to pay back on a monthly basis. Just because a bank agrees to lend you money, doesn't necessarily mean you can afford to pay it back
- Remember that interest rates may go up or down, therefore your monthly payments may change
- Allow for changes in your salary or work circumstances. For example, you may need to reduce your working hours or take a break to start a family
- Think about other expenses associated with owning a house such as council tax, utility bills, insurance etc.
Deposits
The days of banks lending 100 or 125 per cent mortgages are long gone. Most banks or building societies won't lend more than around 90 percent; therefore you're going to need at least a 10 per cent deposit.
The higher the deposit you have, the better your mortgage rate will be. It also reduces the risk of negative equity (where the value of your home is less than the outstanding mortgage).
Remember, to take other costs associated with buying a new property into consideration when working out how much of a deposit you can afford.
