When looking to buy a home, it is crucial that you accurately calculate how much you can afford to borrow for your mortgage. Let’s take a look at the factors you need to consider when determining your budgets.
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What will affect how much I can borrow??
One of the main things to consider before applying for a mortgage is your current overall income and whether it is likely to change for any reason in the near future. Expenses such as moving and renovation costs should also be considered, as well as your monthly living costs.
The savings you have and how much debt you are comfortable with should also affect how much you are looking to borrow.
Related: Moving home? Here’s how to plan your finances
Should I put all of my savings into the deposit?
A deposit is the amount you’ll contribute to your property purchase outside of your mortgage. To work out your deposit , you need to set an overall budget based on how much everything will cost.
If you have money saved up or are selling your current home to raise capital, you may be able to afford a larger deposit. It’s a good idea to set yourself a safety net so that you still have some savings left after you have moved.
It is also important to take stamp duty into consideration, as you may need to pay this tax depending on the value of the property you purchase.
That said, you should be looking to put down a deposit of at least 10% of the property’s value. Remember, the bigger your deposit, the cheaper your monthly repayments will be. A larger deposit will also improve the chances of you being accepted by a mortgage lender and decrease the chances of you falling into negative equity in the future.
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What will affect the size of my mortgage offer?
There are a range of factors that can affect how much you can borrow for your mortgage, aside from the size of your deposit, your income, and your credit rating. These include:
Whether you’re employed
The stability of your income will also be taken into account, as a predictable salary is preferred by mortgage lenders and will usually make them willing to offer a larger mortgage.
Monthly outgoings
As well as the upfront costs, you also need to calculate your monthly expenses. In order to ensure affordability, your monthly mortgage payment should be no more than 30–35% of your overall income after tax.
Energy efficiency and property maintenance
You should consider the energy efficiency of your new home and calculate roughly how much you will have to spend on bills. It is also important to have some money to fall back on should something go wrong with your property that requires maintenance.
Interest rate rises
As mortgage rates change from time to time, it is important to make sure you will still be able to afford your mortgage in the event of interest rates rising.
Find out how much you can afford to borrow today
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