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.

Thinking about all the outgoings that you have throughout the year along with savings 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 already a homeowner, the value of your current house (equity) will also be an important factor in affordability. Let’s dig into the detail…

What's the first step?

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.

What's your property worth?

How much deposit do I need for a mortgage?

The largest mortgage you can get at the moment are 95% Loan-to-Value mortgages. Loan-to-Value is the amount you are borrowing in relation to how much the property is worth. So for a 95% Loan-to-Value you would need a deposit of 5% of the cost of the house you’re buying, and get a mortgage for the other 95%. Loan-to-Value is relative to the price of the property. The more you put in as a deposit, the less you will need to borrow, which typically means a lower loan-to-value and therefore in most cases, lower monthly payments. When you’re trying to figure out how much you have available for a deposit, make sure that you have some set aside to cover the other associated costs of moving. Your Mortgage Consultant will be able to explain in more detail.

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, your credit rating and existing credit commitments. A key factor for many lenders is also your debt to income ratio. Your Mortgage Consultant will assess your potential to borrow based on your individual circumstances.

If you want a rough idea of how much you can borrow and what your monthly payments might be, why not use our mortgage calculator?

The 2.87% annual interest rate is based on the Connells Group average mortgage interest rate taken from the period of 01/01/2022 – 28/09/2022, and is correct as at 29/09/2022
**Please be aware, these results are for illustrative purposes only and should not be considered as a mortgage quote. These are based on a repayment mortgage and may vary depending on the term and interest rate of your mortgage. Lender fees may also be applicable.

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

Your best bet is to speak to a mortgage advisor.

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 agreement in principle. An agreement in principle will help you search for a property in your price range. More importantly, it helps confirm to the seller that you are serious about buying as it shows you can get a mortgage (subject to status and lender criteria).

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 original mortgage and then use the £150,000 equity as a deposit. You could take out a mortgage for the other £150,000. Another factor to consider are Early Repayment Charges (ERCs) when paying back the original mortgage. Knowledge is most definitely power when it comes to understanding mortgages, but fortunately our advisors are on hand to make everything as straightforward as possible.

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.

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 lender criteria, 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 a mortgage advisor is your best bet.

What costs are associated with buying a property?

Stamp duty or Land Tax cost

Often stamp duty can be the largest additional cost of buying a home. If you’re purchasing a main residence in England, the September stamp duty cuts mean that properties worth up to £250,000 are exempt from stamp duty and first time buyers pay no stamp duty up to £425,000.* These will remain in place only until 31 March 2025 before they revert back to previous rates. 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 £225,000 are exempt from Land Transaction Tax.*** If you’re purchasing a second home, there are separate and higher rates for tax.

Survey and valuation costs

When you purchase a house, 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. It also helps your insurer calculate the reinstatement cost when arranging your buildings insurance (to cover the cost to completely rebuild the property in the event of fire etc.) Some lenders 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.

In addition to the lender’s checks, 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 costs vary as there are several options to choose from depending on property type and level of detail, 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.

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, possibly 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 £1,493.****
  • Buildings and contents insurance. You must have buildings insurance in place to qualify for a mortgage. Speak to us today.

Do you have a house to sell? How much could you sell for?

* https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
** https://www.gov.scot/policies/taxes/land-and-buildings-transaction-tax/
*** https://gov.wales/changes-rates-and-bands-land-transaction-tax-october-2022
****https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1076602/Council_Tax_Levels_Set_by_Local_Authorities_in_England_2022-23__revised_.pdf


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.
MS/CW/6407/10.22 - Correct at time of publishing – 16/11/2022