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The Home Buying Process

How Much Can I Borrow?

First Time Buyers Tips

Home > Mortgages > How Much Can I Borrow?

How Much Can I Borrow?

Poor credit history

So you've decided to get your foot on the housing ladder. You're fed up with having to ring up the landlord because the shower has gone wrong yet again. The view of everyone else's dustbins from your kitchen window is beginning to get to you.

What happens now?
First of all, buying a property is an expensive business so it's a good idea to work out whether you can afford to borrow enough to get on the property ladder in the first place.

Salary Multiples
Mortgage lenders will usually lend you between three and four times your gross salary, although some lenders will offer you more if you're willing to pay a higher interest rate. If you're buying with a partner then they'll probably throw in the equivalent of his or her annual salary in addition to the amount they're prepared to lend you. So, if you're on £25,000 a year and he or she is on £20,000, you should be able to borrow around £120,000. Alternatively, they may lend you three times your joint income. This usually means you can raise a slightly bigger mortgage. Using the same salary figures, you could borrow £135,000 on this basis. If you get any additional income from bonuses these may be taken into account as well.

'The larger the deposit you put down,
the better the rate of interest will be'

Deposits
The next thing to think about is the deposit you'll need to buy the house. A mortgage lender will usually loan you up to 95% of the value of the property which means you'll have to come with the rest. If you want to buy a house worth £100,000, you'll need a deposit of £5,000 and so on. Do you have any savings that you can use? Can you raise the money by other means, if you haven't? Can your parents help?

The larger the deposit you put down, the lower the rate of interest you are likely to get. A larger deposit also reduces the risk of you going into "negative equity". This is the nasty situation when the value of your house falls to below that of your mortgage. This makes it difficult to move house as if you sell up the proceeds won't cover the mortgage, and you would need to find additional funds from elsewhere.

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