How much you need to earn to climb the property ladder
So you have decided to buy a house (or an apartment).
If you’ve decided to take the plunge and join the millions of homeowners in the UK, there are a few things you should be aware of before you start looking for your perfect home. The first thing to do is figure out how much you can afford to borrow.
There is no quick answer to this question.
While the amount you earn is a major factor, there are also other things that will be taken into account in determining how much you will be able to borrow.
A lot will depend on your personal situation, credit history, age, and whether you plan to buy on your own or with a friend or partner, but let’s start with a few basics.
How much can you borrow?
It is difficult to give a universal answer to this question and all lenders will have a different way of determining what they are ready to lend. However, as a general rule of thumb, you will usually be able to borrow about four and a half times your annual base salary as a first-time buyer.
Be aware, however, that a lender will consider a number of other factors. Along with your salary, a lender will take into account your work history, your credit history, and even how much you spend, so it might be a good idea to start cutting back on those little luxuries. Basically, the loan will try to paint a picture of you, your ability to pay, and the risk you represent. On that basis, the loan criteria could drop to four times your salary or up to five times your salary. The worst-case scenario is that they might not want to lend you at all if you don’t have a good track record.
If your job means that you have the potential to earn overtime, a bonus, or a commission, the lender will again consider this aspect of your income, but how they view it will depend on the lender. Each bank or building society will have its own way of calculating the numbers. As an example, one lender stated that it would factor this additional income into its calculations if the income was regular. Typically, lenders happy to do so will take 50% of the amount into account and apply their multiples / affordability calculations to Income Base plus 50% of additional income.
How much are you spending
Affordability is another important consideration. Lenders want to make sure that the repayments you need to make are realistic and therefore they also look at your essential expenses … things like heating bills, food, travel expenses.
Ian Gibbons, Senior Manager at Nottingham Mortgage Services, said: “If you are in a position, before you take out the mortgage, to make a budget planner with approximate costs for your mortgage, insurance, utilities, anything else. essential expense such as babysitting, food and gasoline etc. and if possible try to save that amount each month in your savings account or ISA for life. That way you are already used to parting with a substantial sum each month, and it won’t shock you when you start paying the mortgage and other bills.
“Take a look at all of your expenses – what is essential, what is a luxury, and if your mortgage costs are going to be higher than expected, ask yourself if you are willing to forgo any of your luxuries. Also, try to avoid entering into large leases or credit agreements such as car financing right before applying for a mortgage, as these could impact affordability. “
The next big issue is the deposit. Without it you won’t get anywhere, so if you are at the very beginning of thinking about buying a home, make sure you save enough to satisfy a lender when it comes to how much you can deposit. . Keep in mind that you will also have other expenses, such as surveys, attorney fees, possible moving costs and, depending on when you buy and for how much, you may even have to pay stamp duty – although this only starts during normal hours the house is priced at £ 250,000 or more (until June 30, 2021 you can buy a house worth up to £ 500,000 and don’t still nothing to pay due to the current stamp duty holidays triggered by the pandemic).
You will need at least a 5% down payment, but remember that the higher your deposit, the better the cheapest mortgage offer you can take out. There aren’t that many lenders offering 95% mortgages right now, so if you can increase that number to 10%, you’re more likely to get a good mortgage deal. However, don’t despair, there are schemes that can help you increase your saving power as well as buying schemes such as Lifetime ISA, Help to Buy, and the new 95% mortgage guarantee scheme. There is also shared ownership to consider.
Ian added: “Check your credit profile with one of the credit reporting agencies – late or missed payments can affect your chances of getting a mortgage. Therefore, if you have a recent history of late payments, make sure you pay your credit commitments on time for the next 6/12 months and move on.
“First-time buyers should consider talking to a broker in the wider market who can consult with many different lenders to find the right mortgage, taking into account factors such as what can be borrowed, the deposit required and the amount. cost of the mortgage. “
How much do you need to earn?
So when it comes to that big question of “how much you should earn”, here are a few examples.
If you are buying on your own and have an income of £ 25,000, for example, depending on the lender and all the factors we have already mentioned, you could borrow between around £ 81,000 and £ 113,000 depending on the factors. above. We estimated this using a 10% down payment on a 25 year fixed rate mortgage.
This is just an estimate based on an ideal scenario so what you can actually borrow will depend on various personal circumstances, individual lender criteria, what you are buying … the list goes on, so this is an area in which it is advisable to seek professional advice. .
What can I buy?
According to Rightmove, the average selling price of a property in Nottingham is currently £ 223,508, but this is only an average, there are a lot of houses for sale below and above that figure . A quick search using our tool below will bring up a good selection of homes, including a mid-terrace at Bestwood priced at £ 120,000 and a semi-two-bed in Carlton at £ 110,000.
So with all of this in mind, do your homework, try using one of the many online mortgage calculators available at first, but the best advice is to talk to a lender or mortgage advisor who will be in. able to calculate exactly how much you can borrow, how much your monthly payments will be and all the important question of how much you will need to save on deposit.