FISCUS MORTGAGES - INFORMATION AND ADVICE

How much can a first time buyer borrow?

The easiest way to get a ball park figure of your potential borrowing limit is to use our Maximum Borrowing Calculator. This will then provide you with a price range to base your property search around.

FACTORS THAT AFFECT BORROWING LIMIT

Although a pretty accurate estimate, there are many factors that can affect your overall borrowing limit. The key factors to bear in mind are:

- Your Salary – this will be the basis of any estimate of your borrowing capacity.
- Your credit history – particularly any existing debt obligations.
- Whether the mortgage will be joint or solely held by you.

FACTORS THAT AFFECT THE INTEREST YOU WILL PAY

Equally, you must consider the factors that will affect your interest rate. Small changes in a variable rate mortgage could cost you thousands of pounds over the duration of the loan. In fact, these small changes could cost you thousands over a much shorter period of time.

The aforementioned issues that determine borrowing levels also feature prominently when deciding your interest rate, along with:

- Your employment (employee, self-employed, variable income).
- The size of your deposit.
- Your credit score – an extension of the previous credit history factor.
- The Bank of England base “repo” rate.

IMPORTANT POINTS ABOUT HOW MUCH YOU BORROW

It is usually possible to get mortgages up to three times the value of your annual income. If you earn £25,000 for example, you could typically borrow up to £75,000. Most lenders have specific first-time buyer mortgages that require a smaller deposit than usual or no deposit at all.

Bear in mind though that most lenders prefer a loan-to-value (LTV) ratio of no more than 95% i.e. you have to put down a deposit of 5% of the value of the property. When this is not possible, be prepared to pay a higher interest level for this, as the market for 100% LTV is quite small. That said, there are some lenders that will accommodate even higher LTVs on a case-by-case basis. Scottish Widows, for example, can offer up to 110% LTV. However, if considering a high LTV mortgage, it is advised you read our information on mortgage indemnity guarantees (MIGs).

There are some mortgages that will allow you to borrow up to four times your existing income, but in these cases mortgage providers usually look for evidence of an increasing income over time.

You must always bear in mind that you should not over-extend yourself financially. All your outgoings must be taken into account when you decide on how much you think you will be able to borrow and your level of repayments.

You may be worried that you may have problems getting hold of a mortgage. Just remember one point though: a mortgage is a secured loan. If you are unable to meet your repayments, the bank always knows that in the worst-case scenario, it can sell the property and cover the debt. This means that a mortgage is not a particularly high risk for a bank, so as long as they feel you are not over-extending yourself, they are likely to provide the mortgage.