Buying a property: working out EXACTLY what you can afford...

Buying a property: working out EXACTLY what you can afford...

Looking to buy a home in the current housing market? It’s more important than ever to know your budget before you begin scrolling and researching. Let’s explore…

Buying a property is a big step and it involves an even bigger financial commitment. You will need to think about the savings you have and what can be used for your deposit as well as what other costs are associated with buying and owning a home. You’ll need to think about the outgoings you have – money that’s coming in and going out. These are key factors in deciding what sort of mortgage you can take out.

What you don’t want to do is commit to a mortgage and then realise halfway through that you can’t afford it or that you’re strapped for cash every month. Thinking about all the outgoings that you have throughout the year will give you an idea of how much you have to play with and will ensure you don’t end up overstretching yourself.

If you’re a first time buyer, your assets will mainly consist of savings and investments. If you’re already a homeowner, your current house is also an asset. Let’s dig into the detail…        

What's your property worth?

How much deposit do I need for a mortgage?

The largest mortgages you can get at the moment are 95% mortgages. This means you would need a deposit of 5% of the cost of the house you’re buying. To do a rough calculation, take the house price and multiply it by 0.05. According to Rightmove, the average price of a home for a first time buyer in August was £224,091. Let’s round this to £225,000 for illustrative purposes.

This would mean the minimum deposit amount you would need for the average house in the UK is £11,250, because £225,000 x 0.05 = £11,250. Of course, the higher your deposit, the lower the loan to value and therefore the lesser the monthly payments. If you take out a 90% mortgage, you'll need a 10% deposit saved and so on. When you’re trying to figure out how much you have available for a deposit, make sure that it’s not coming out of your emergency fund. This shouldn’t just be the maximum amount of cash that you can scrape together. How will you make mortgage payments if you use every penny on the initial deposit?

How much can I borrow with a mortgage?

Each mortgage lender has a different way of calculating how much they will lend to you, or even whether they will lend to you at all. This includes looking at criteria such as your income, the size of your deposit, your regular expenditure, and your credit rating. A key factor for many lenders is also your debt to income ratio. If this is too high, it can indicate that you're overleveraged and perhaps not in a position to take or pay off debt.

If you want a rough idea of how much you can borrow, why not use our mortgage calculator?

Book a mortgage appointment

You will receive a callback from our team to book you in with your local Countrywide Mortgage Services Consultant

Your information is being collected and processed by Countrywide for the purposes of providing the service and/or products you have requested. Personal data will be processed in accordance with the Data Protection Act 2018 and all other applicable data protection law and regulation, such as the General Data Protection Regulation. We may market products and services to you under the lawful basis of legitimate interests. Should you not wish to receive any unsolicited marketing from us you have the right to object to this processing by emailing privacy@countrywide.co.ukFull details of how we process your information can be found in our website Privacy Notice. A printed copy of our Privacy Notice is available on request. If you need to discuss how your information is being processed, please contact us at privacy@countrywide.co.uk.

Want a more accurate estimate of how much you can borrow?

Your best bet is to speak to a lender or mortgage adviser.

They can take a look at your exact situation and go through what you might be able to borrow. If you really want to be taken seriously as a buyer, you’ll want to take the time to get your mortgage in principle. This will really set you apart from other buyers in the market and will also give the agent and seller faith that you can afford the property you’re viewing.

Can I use the equity in my house as a deposit?

You can, yes. Your best bet is to call your lender and find out how much you owe on your mortgage. Then ask one of our expert local agents to value your home or check its value online now.

If your mortgage balance is less than your home is worth, you have equity in your property. Let’s use a quick example to show how this works… Say you have a £100,000 mortgage on a house worth £250,000. The equity (or money in the property) is £150,000.

If you bought a new house for £300,000, you could pay back the mortgage and then use the £150,000 equity as a deposit. You could take out a mortgage for the other £150,000. It’s also possible to access the money in your property without moving house. For example, you could use £100,000 of the remortgage money to pay off your existing mortgage, leaving you with £50,000 in cash to put towards your new house. Knowledge is most definitely power when it comes to understanding mortgages, but once you get your head around this, it's all (almost) plain sailing...

Are you self-employed?

What are the best mortgage rates if you’re self employed? Great question. There are slightly different hoops to jump through if you don’t have a salaried job. If you’re in this position, you’ll want to speak to a mortgage advisor to get an indication of what you could borrow, and how much the repayments might be.

Are you investing in a buy-to-let property?

As with self employed mortgages, buy to let properties have slightly different criteria and things to consider, so speaking to an expert mortgage adviser is your best bet.

What costs are associated with buying a property?

Stamp duty cost

Often stamp duty can be the largest additional cost of buying a home.If you’re purchasing a main residence, properties worth up to £125,000 are exempt from stamp duty and first time buyers pay no stamp duty up to £300,000. In Scotland, properties worth up to £145,000 are exempt and first-time buyer relief applies up to £175,000. In Wales properties worth up to £180,000 are exempt from stamp duty. If you’re purchasing a second home, there are separate and higher rates for tax.

Survey costs

When you purchase a house, it is always worth getting a professional survey. This will give you an idea of the property’s structure and condition before you buy it. Surveys can be pretty costly - from £300 to well over £1000. It all depends on what sort of survey you take out so head here if you’re unsure of what’s available.

While a survey does involve an initial outlay of money, adding to the cost of buying a house, it does give you re-assurance that your future home is in good condition and you won’t be having to fork out for expensive repairs further down the line. You don't want to have your offer accepted only to find out that the Aga's bust or the electrics are ancient and frazzled. It happens.

Mortgage valuation fees

Your mortgage lender will also want to conduct a valuation survey. This is designed so that the lender knows the property is worth at least what you’re paying for it. Some banks don’t charge a mortgage valuation fee but, if they do, they usually vary according to the value of the property and lenders will have their own fee scale. Typically, valuation fees are around £200-300 so that’s something to factor into your costs.

How can I get a cheaper mortgage?

One thing you could consider is extending the loan term when you take your mortgage out. Although you will pay more interest in the long run, your monthly payments will be less. Younger borrowers have more time to increase their earning potential and move to a different deal in future. Banks may be more reluctant to extend your term if you are in later life.

The cost of owning a home

Once you have moved into a property, it isn’t just the mortgage you have to pay every month. There are some other costs involved with owning a home. For example:

  • Water, gas and electricity bills are going up and these can be expensive monthly costs, adding up to a few hundred pounds a month.
  • Council tax has to be paid by occupants of properties, and can range from a couple of hundred pounds a year to several thousand.
  • Buildings and contents insurance can come to anywhere between a few hundred and thousands of pounds a year.
  • Do you have a house to sell? How much could you sell for?

    ALL MORTGAGES ARE SUBJECT TO STATUS AND LENDER CRITERIA.

    MOST BUY TO LET MORTGAGES ARE NOT REGULATED.

    A BROKER FEE MAY BE PAYABLE UPON MORTGAGE APPLICATION AS WELL AS AN ADMINSTRATION FEE. THE TOTAL FEE PAYABLE WILL DEPEND ON YOUR CIRCUMSTANCES. YOUR MORTGAGE CONSULTANT WILL EXPLAIN ANY FEES APPLICABLE IN YOUR INITIAL APPOINTMENT.

    YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REDEMPTION CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE.

    Countrywide Mortgage Services and Countrywide Insurance Services are trading names of Countrywide Principal Services Ltd which is authorised and regulated by the Financial Conduct Authority (Firm Registration Number 301684). Registered Office: Countrywide House, 6 Caldecotte Lake Business Park, Caldecotte Lake Drive, Milton Keynes, MK7 8JT. Registered in England no. 01707341.