You’re earning around £30,000, you’ve been putting money aside, and you want to know whether a place of your own is realistic now or still a few years off. It’s a fair question, and a good one to start with. Here’s how a lender would look at it, so you know roughly where you stand before anyone runs your numbers.
Is £30,000 enough?
It can be. As a rough guide, a lender working to four and a half times your income would lend up to about £135,000 on £30,000. With a 10% deposit, that points to homes up to about £150,000, and there are plenty of homes around that price in Liverpool, mostly terraces and flats. Buying with someone else changes the sums again, because most lenders look at both incomes together.
Those figures are a guide, not a promise. What a lender actually offers depends on the rest of your situation.
How do lenders work out what I can borrow?
They start with your income. Most lenders will lend up to around four and a half times what you earn, some a little more in certain cases, some less.
Then they look at what already goes out each month: loans, car finance, credit cards, childcare. That’s why two people on the same salary can be offered different amounts. Overtime, bonuses and self-employed income are treated differently from basic pay, and lenders don’t all treat them the same way.
What is the 4.5 rule?
It isn’t a rule about you. It’s a Bank of England limit on how much lending each lender can do at four and a half times income or more, which is why many lenders stop around there.
Can I get a £200,000 mortgage on a £40,000 salary?
That’s five times income, above where most lenders stop. Some will go that far in certain circumstances, but it isn’t the norm. A second income, a bigger deposit or a slightly cheaper home all change the picture.
How much deposit do I need?
The usual minimum is 5% of the price, helped by a government-backed scheme for lenders that has now been made permanent. On a £150,000 home that’s £7,500, or £15,000 for 10%. A bigger deposit usually means more lenders to choose from and a lower rate. Lenders call this loan to value, or LTV: the mortgage as a percentage of the price.
If you’ve already saved part of it, you’ve started on the hard part.
Will I pay stamp duty?
If you’re a first-time buyer in England, there’s no stamp duty on a home up to £300,000, and most first homes in Liverpool cost less than that. Above £300,000 you pay 5% on the part up to £500,000, and over £500,000 the relief doesn’t apply.
How much should I borrow?
What a lender will lend and what feels right for you aren’t always the same number. A payment that only works if nothing changes leaves no room for the boiler, the car or a quieter month at work, and most of us underestimate how much changes in a few years. A plan you’ll still be comfortable with in five years is worth more than a bigger one you won’t.
What else should I budget for?
Solicitor’s fees, a survey if you want one, sometimes a fee for the mortgage itself, and a fee for advice if there is one. The details of mine are at the bottom of every page.
What to do next
Fill in my budget planner, so you can see what a monthly payment would leave you with. Then get a decision in principle before you start viewing: a lender’s early indication of how much they’d lend you, based on a quick look at your income and credit file. It turns a rough guide like this one into a number you can shop with.
Would it be a bad idea to know that number before you fall for a house?
Once you have it, look at it again whenever something changes: a pay rise, a new car, someone moving in. My first-time buyers page explains the whole process, and my guide Your First Home goes through it step by step.