| The amount you can borrow depends mainly on your income. You need to find out roughly how much you might be able to borrow before you go house hunting. That way you know the price range you can afford. |
| The traditional approach Lenders generally take the view that buyers can afford about three times their annual pre-tax income, sometimes slightly more. For couples who are both working, the "income multiple" is generally three times the larger salary, plus one times the second. Quite a few lenders will be prepared to consider a higher income-to-loan multiple. You may find this tempting. Before you opt to borrow more, work out whether you can actually afford it. |
| Going for a bigger loan Some lenders will lend on the basis of affordability rather than income multiples. They look at your monthly income and outgoings, and base the amount they are prepared to lend on your individual circumstances. This approach can come up with a much bigger loan than you would normally be offered using traditional income multiples. Do your budgeting carefully if you take up such an offer. |
| Keep your payments down Generally speaking, you should try not to pay more than 40 per cent of your net (take home) pay in mortgage payments. This is just a guideline: in London, for example, you may well find half your income going on the mortgage. On top of that there are the ongoing costs of owing a house: council tax, utilities and maintenance. It’s hard to estimate costs before you move in, but overall you should try to keep the total cost of your home to a maximum of 60 per cent of your monthly take-home pay. |
| The valuation limit You can usually borrow only 95 per cent of the property’s valuation, which can be lower than the price you have agreed with the seller. Many lenders give better deals to people with large deposits, so it can make sense to dip into savings to do this. You can get 100 per cent mortgages, but the rates are generally uncompetitive and you might pay 1 per cent more to borrow at this level. It is much better to save for a deposit. The amount you can borrow depends mainly on your income. You need to find out roughly how much you might be able to borrow before you go house hunting. That way you know the price range you can afford. |
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