Struggling to understand how much a lender will allow you to borrow as a first-time buyer?
While there’s many factors that lenders will assess when looking at your affordability, having a rough idea of what you can afford is often the best place to start your first-time buyer journey.
To support you through this potentially confusing and stressful process, the down-to-earth team at UKMC explain the various factors that can affect how much you can borrow as a first-time buyer.
How much can a first-time buyer borrow when applying for a mortgage?
A general rule of thumb for answering the question ‘how much can first-time home buyers borrow?’ is that lenders tend to offer a maximum loan amount of 4.5 times your annual income minus any outgoings.
While other factors a play a part in determining how much a lender will allow a first-time buyer to borrow, mortgage lenders rely on how much you earn to assess your affordability.
For a more accurate idea of how much you’ll be able to borrow, arrange a consultation with one of our advisors who specialises in mortgages for first-time buyers.
What affects the amount a first-time buyer can borrow?
When loaning anyone a significant amount of money, there will always be some kind of risk.
However, to keep this risk as low as possible, lenders will usually consider many different affordability factors to determine how much they are happy to lend you.
Let’s explore these in more detail below.
Income
It’s important to bear in mind that although the typical maximum loan amount lenders are willing to offer is between four to five times your annual income, this isn’t a guarantee that you’ll be able to borrow this much.
As a first-time buyer, it’s often preferable to apply for a mortgage with another individual as this gives you a greater, combined income and will allow you to look at higher-priced properties or secure a mortgage with a more competitive interest rate.
Deposit and loan-to-value (LTV) ratio
You may have heard the term ‘LTV’ during your mortgage research, but what does it mean and how does it affect how much you can borrow?
Put simply, LTV refers to how much deposit you’re able to put down on a property.
For example, if you’re able to put down a 15% deposit, then you’ll have LTV ratio of 85%.
A lower LTV means you’ll be seen as lower risk by your chosen lender, so the greater your deposit is, the more likely you’ll be offered more favourable mortgage terms.
Fortunately, however, if you’re a first-time buyer in the UK with a 5% deposit, you can still get onto the property ladder.
This is thanks to the introduction of the government’s Mortgage Guarantee Scheme which has increased the availability of high 95% loan-to-value (LTV) mortgage products.
Unlike recent years where a deposit of between 10-20% was typically required to obtain a mortgage, many mortgage lenders are now able to offer first-time buyers a mortgage with just a 5% deposit.
These arrangements may come with higher interest rates than low LTV deals, but it can help first-time buyers to become homeowners.
Credit score
A credit score is one of the key factors that mortgage lenders use to determine whether you’re a good borrower.
If you frequently miss payments, have a lot of credit agreements, or have suffered past financial difficulties (like County Court Judgements), the lower your credit score will be.
Generally, the higher your credit score, the less lenders will view you as a risk, meaning you’re more likely to be offered mortgage deals with lower interest rates.
If you’re concerned about your credit score, it may be worth contacting a mortgage advisor financial advisor for support.
Expenses
Alongside looking at your income, mortgage lenders will also assess your outgoings and expenses by looking at your bank statements.
Analysing your outgoings allows them to see how you spend your money and whether there’s any cause for concern.
For example, if you’re constantly going into your overdraft every month, you’re likely to be seen as more of a risk and therefore may not be allowed to borrow as much as you would like.
Existing debt
While existing debt won’t stop you from being able to get a mortgage as a first-time buyer, it may affect how much a lender is willing to offer you.
This is because lenders will look at your debt-to-income ratio (DTI) to determine how much of your income is spent on paying off your debt.
A high DTI (typically above 43% according to Investopedia) means too much of your income is going towards debt repayment and lenders may not offer the standard mortgage of four to five times your annual salary.
Find out how much you can borrow with UKMC
At UKMC, we understand that first-time buyers may feel confused about how their affordability is calculated or the overall process of obtaining their first mortgage.
Fortunately, our expert team of mortgage advisors aims to make this process as straightforward and easy-to-understand as possible.
No matter where you are in the process of buying your first home, whether you’ve started viewing properties, have already received an agreement in principle, or want to purchase a property without putting down a deposit, our mortgage professionals can help.
Our advisors will explore thousands of mortgage deals that meet your specific needs as a first-time buyer.
Instead of baffling you mortgage jargon or complex figures, we’ll explain any terms you’re unfamiliar with and ensure you understand every step of the mortgage process.
To more clear answers to questions like ‘how much can first time buyers borrow’, please feel free to schedule your appointment with UKMC’s expert mortgage advice team today!
Alternatively, if you’d prefer to talk to us first before booking your appointment, you can either call us on 01925 573328, fill out our online contact form, or email your enquiry to hello@ukmc.co.uk.
We also welcome in-person visits to our Warrington office, so why not drop in and see how we can help you to start your property ladder journey?
Disclaimer
UK Mortgage Centre is a trading style of Refresh Mortgage Network Limited.
Refresh Mortgage Network Limited is authorised and regulated by the Financial Conduct Authority. FRN – 826982. Registered in England & Wales: 11614569.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.
The Financial Conduct Authority does not regulate some forms of buy-to-let mortgages.
The Financial Conduct Authority does not regulate will writing and taxation and trust advice.
