When considering buying your first home, there is one particular area that tends to require a huge amount of focus: the cost of the property you want to buy. In an effort to assist you with this task, below, we’ve outlined what you’ll need to consider…
Your potential mortgage
Calculating the mortgage amount you can borrow is the obvious first step when deciding your property budget. In calculating the amount you are able to borrow, your salary is the first element to consider. Most mortgage providers will be willing to offer your combined income times a certain amount; the exact amount varies depending on factors such as your credit score and existing debts, but 4.5x your salary is often seen as a good reference point. So if you earn £25,000 per year, then the maximum mortgage you could apply for is £112,500.
Your deposit (and how it influences your mortgage)
You’ll need to have a deposit of at least 5% of the property value to secure a mortgage in the UK, and the larger your deposit, the more you can potentially borrow.
So, the best starting calculation for a mortgage is 4.5x your salary + 5% deposit. So, if you earn £25,000 per year, the maximum amount you could spend on a property would be £118,125. For some mortgages, larger deposits may be required.
After the above calculation, you should have an idea of the property price you may be able to afford, and you can begin saving towards your deposit. However, there are a few other aspects to consider…
In addition to saving for your deposit, you’ll also need to consider additional fees associated with buying a property:
- Your mortgage provider will charge fees to arrange the mortgage and conduct their own survey.
- You will need to visit the likes of Conveyancing Store to find a solicitor to arrange the legal side of the purchase, so these fees also have to be considered also.
- You may also need to pay stamp duty if considering properties over £300,000.
- Finally, you will need to ensure that any property you want to buy has been surveyed, which is an additional cost.
As a result of these fees, saving for your deposit amount does not necessarily mean that you will have saved enough to buy your first property. You can, of course, simply choose to add these fees to the amount you wish to save for your deposit – though this does mean you may need to save for longer.
Alternatively, you could consider lowering the potential property price. Doing so would reduce your deposit amount and could allow you to save for your deposit and associated fees in a shorter time frame.
The ongoing costs
However, even with all of the above, there is one final thought required before you decide your property budget: ongoing costs. The higher the value of a property, the more likely it is to be large – which could mean that your heating bills increase. In addition, council tax and insurance can be more expensive for larger properties.
If you are concerned about ongoing costs and how they may impact your family’s finances, reducing your property budget could be worth considering. It’s helpful to remember that you do not need to apply for the maximum mortgage amount that you qualify for. If you are happy to set your property budget lower in order to allow you to save for your deposit and fees quickly and keep your monthly outgoings reasonable, then you are free to do so.
Setting a property budget as a first time buyer is never simple; a huge amount of research, and a consideration of other costs, will always be required. Hopefully, the above information will allow you to go through your finances and settle on a budget that can work for you.