Getting Your Finances in Order: What Can You Actually Borrow?
So you've decided you want to buy your first home. Brilliant. That feeling of having your own place, your own front door, your own space — there's nothing quite like it. But before you start falling in love with listings on Rightmove, there's one conversation that needs to happen first: money.
Don't worry. This isn't as scary as it sounds. Here's everything you need to know, in plain English.
Start with your deposit
The deposit is the chunk of money you put in upfront. Most lenders will want at least 5% of the property's value, though 10% will open up far better mortgage rates. So if you're looking at a £200,000 home, you'll need somewhere between £10,000 and £20,000 saved.
If you haven't started saving yet, a Lifetime ISA (LISA) is well worth looking into. You can save up to £4,000 a year and the government adds a 25% bonus on top — that's free money towards your first home.
Understanding how much you can borrow
Lenders work out what they'll offer you based on your income. Most will lend somewhere between four and four-and-a-half times your annual salary. So if you earn £30,000 a year, you could potentially borrow up to £135,000. If you're buying with a partner, your combined income is used.
But your income isn't the only thing they look at. They'll also consider:
- Your outgoings (subscriptions, loans, credit cards, childcare)
- Your credit score and history
- How stable your employment is
- Any existing debts
Get a mortgage in principle first
Before you start viewing properties, get a mortgage in principle (sometimes called a decision in principle or agreement in principle). This is a document from a lender that says, in principle, they'd be happy to lend you a certain amount. It doesn't tie you to anything, but it does two very important things:
- It tells you exactly what budget you're working with
- It shows sellers and estate agents that you're a serious buyer
Most lenders can issue one quickly, and it won't leave a hard mark on your credit file if it's a soft search.
Don't forget the other costs
The mortgage and deposit are the big numbers, but there are other costs first time buyers sometimes overlook. Budget for:
- Solicitor/conveyancing fees: typically £1,000 to £2,000
- Survey costs: from around £400 depending on the type
- Mortgage arrangement fees: sometimes charged by the lender
- Removal costs
- Stamp Duty: as a first time buyer you're exempt on properties up to £425,000
Get proper mortgage advice
There are thousands of mortgage products out there and finding the right one genuinely matters. A good mortgage broker will search the whole market on your behalf, explain your options in plain English, and can often access deals you won't find going direct to a bank.
Smeaton tip: If you'd like a recommendation for a trusted, local mortgage adviser in Plymouth, just give us a call. We work with some brilliant people and we're happy to point you in the right direction — no strings attached.
A quick word on credit scores
Your credit score plays a big part in what a lender will offer you. The good news is there are simple things you can do to improve it before applying:
- Register on the electoral roll at your current address
- Pay all bills on time
- Avoid making lots of credit applications in a short space of time
- Keep credit card balances low
- Check your report for errors (Experian, Equifax and TransUnion all offer free checks)
Getting your finances sorted before you start viewing is one of the best things you can do. It means no nasty surprises, a clearer head when you're out there looking, and a much stronger position when you find the right home.
