You’re ready to make the jump and hoist yourself onto the property ladder by purchasing your very first home. But how much can you realistically expect to borrow as a first-time buyer?
First things first, congratulations on embarking upon the exciting journey of purchasing your very first home! As a first-time home buyer, one of the essential steps is applying for your first mortgage. Navigating the mortgage application process may seem daunting, but with the right knowledge, preparation and guidance, it can be a pretty smooth experience. In this blog post, we’ll be shedding some light on a pretty critical factor: how much you can expect to be able to borrow. Let’s get stuck into it!
How much can you expect to borrow?
Before taking any further steps forward, it’s important to consider how much you are able to borrow. This applies both from the perspective of how much a lender will be willing to offer you and how much is feasible for you and your personal finances.
The amount that you’ll be able to borrow as a first-time buyer is dependent upon a variety of factors, including your income, credit history, debt-to-income ratio, and the lender’s specific criteria. Let’s take a closer look at these factors below…
- Income and employment – Unsurprisingly, the first port of call for a lender is to assess an applicant’s income stability and earning potential. A steady employment history and a higher income can increase the amount you are able to borrow.
- Credit – Your credit score and credit history also play a very significant role in determining your borrowing capacity. A higher credit score indicates a lower risk for lenders, allowing you to potentially qualify for larger loan amounts or better interest rates.
- Debt-to-income ratio – Lenders will assess your debt-to-income ratio, which compares your monthly debt obligations to your gross monthly income. Lower debt levels in relation to your income will generally increase your borrowing power.
- Deposit – The amount of money you can come up with for a deposit will naturally affect the loan amount you’ll need. A larger deposit can reduce the loan-to-value (LTV) ratio, potentially allowing you to borrow more.
- Affordability Stress Test – Since 2014, UK lenders have been required to conduct affordability stress tests to assess your ability to repay the mortgage even if interest rates rise. Lenders typically evaluate if you can afford the mortgage payments at a higher interest rate, often around 5% or more. This stress test helps ensure you can manage your mortgage repayments even if rates increase in the future.
- Help to Buy schemes and government support – First-time buyers may be able to benefit from government initiatives and schemes designed to assist with homeownership, e.g. the Help to Buy Equity Loan scheme or the Shared Ownership scheme. These programs may provide additional financial support or allow you to borrow larger amounts with smaller deposits.
- Individual lender criteria – Different lenders have varying criteria and lending policies. For this reason, it’s important to do some research and compare multiple lenders to find the one that offers favourable terms and loan limits that suit your needs. Better yet, work with a mortgage broker and they’ll take care of this for you!
Borrowing responsibly as a first-time buyer
Remember, whilst it’s essential to determine the maximum loan you qualify for, it’s equally important to borrow responsibly; considering your own budget, financial goals, and comfort level.
Put simply, responsible borrowing means not biting off more than you can chew, and it’s important to bear in mind that the loan you take on now will orientate your financial situation for the foreseeable.
By being realistic about what size of loan you can handle, you’ll ensure that you can comfortably manage your mortgage payments and maintain a stable financial future, without having to worry that your repayments may begin to overwhelm you or place an excessive amount of pressure upon your finances.
Working with a mortgage broker
We know, trying to purchase your very first home can feel incredibly overwhelming! With so much information out there, it can be tough to know where to start. Luckily, that’s where a mortgage broker comes in.
Here at The Mortgage Brokerage, we can leverage our knowledge, experience and whole-of-market perspective in order to provide first-time buyers not only with valuable clarity and guidance, but also with access to a wide range of lenders and loan options, some of which are only available exclusively through our brokers.
In short, we’ll help you to assess how much you can realistically and comfortably borrow, before helping you to find the best deals available on the market.
Looking for help and guidance as a first-time buyer? We can help. Contact us today.
