Mortgages - How Much Can I Borrow
Buying a house is one of the biggest purchases you’ll ever make so it is important you know how much you can afford before you go house hunting. You don’t want to be disappointed! These five factors will give you an indication of how much you can borrow:
1. Salary Multiples
2. Affordability
3. Deposits
4. Valuations/Lawyer Fees
5. Stamp Duty
Salary multiples
As a guideline, a mortgage provider will lend you between 3 and 4 times your gross salary. This can change if you’re willing to pay a higher interest rate. Also, if you are buying with a partner a provider can lend you based on your joint income. For example if your income in £25,000 a year and he or she is on £30,000, you should be able to borrow close to £165,000. Any additional income from bonuses, commission or investment can be taken into account as well.
Affordability
In addition to salary multiples, lenders will look at your affordability. This includes bank statements and any regular outgoings. If you have a record of being smart with your finances this may enable you to get a bigger mortgage however if you are in debt this may hinder the size of the loan they will offer.
Deposits
Simply put, the bigger the deposit you have the more mortgage options you will have including lower interest rates and therefore lower monthly payments.
A 100% mortgage is the only mortgage type available to you if you don’t have a deposit. Not all lenders will lend 100% of the property price and if they do, the loan tends to be at a higher interest rate due to the risk involved. Most lenders will loan up to 95% of the value of the property, leaving you to provide the remaining 5%. So if the value of the property you want to buy is £100,000 your deposit would be £5,000.
Stamp Duty
This is a tax to be paid upon the purchase of a house valued at over £125,000. It varies with the increase of the property value:
· £175,001 - £250,000 – Payment is 1%
· £250,001 - £500,000 – Payment is 3%
· £500,001 or more – Payment is 4%
Valuations & Lawyer Fees
This is typically in the region of £1,000 - £2,000.
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