How much can you really borrow for your first mortgage?

Getting your foot on the property ladder is a big step – and there are countless factors to consider, from your personal finances to pinning down your dream home.

But while it can be a complex process, it’s one that first time buyers across the UK are navigating in increasing numbers.

New data from UK Finance shows that in the first three months of 2019 the number of first-time buyer mortgage completions rose in London by 1.6 per cent compared to the same period last year, while Scotland and Wales also saw increases, with the biggest recorded in Northern Ireland.

Before you even start looking you’ll need to have an idea of your budget, which will depend on how big a deposit you have saved and how much you will be able to borrow to fund your purchase.

How many times my salary can I get a mortgage?

Mortgage lenders will lend anything between four and five times a person’s salary. But there are a range of things to take into account.

“One of the key points is dependent on how much of the deposit you’re putting into the property,” Richard O’Reilly, mortgage expert at Habito told Homes and Property.

“For example, Virgin Money will lend five times your income if you earn over £30,000 and have a 15 per cent deposit as a minimum, subject to credit checks and factors that will deduct from borrowing.”

It’s important to remember that outgoings such as credit commitments, personal loans, student loans, car loans “will start eating away at what you can borrow,” says O’Reilly, which is why a thorough evaluation of your income and outgoings is needed before applying for a mortgage.

Each lender has different criteria to stress test what they believe you will be able to afford if circumstances change, such as interest rates increasing.

Big commitments such as dependent children or dependent adults will be taken into account when checking your ability to afford a mortgage.

Getting your finances in order is a must. Being overdrawn at the bank can be viewed the same as having a credit card balance, while missing or defaulting on payments will also affect how willing a lender is to lend to you.

“Your credit file covers the last six years – make sure you pay your bills on time and always stay in the black if you can,” says O’Reilly.

What is the maximum mortgage-to-income ratio?

Some lenders will go up to 5.5 times your salary, but that tends to be reserved for those with a six-figure income, according to O’Reilly.

What is the minimum mortgage amount you can borrow?

This depends on the lender and many will have thresholds of anything between £25,000 and £75,000. Some, such as Halifax, have no minimum value for borrowing, but will assess each individual case on its merit.

If you find yourself in a position where you don’t need a big mortgage, O’Reilly suggests looking at a personal loan, though these tend to get capped at £15,000 and may have a higher interest rate.

How long should I get a fixed-rate mortgage for?

It is possible to get a fixed interest rate on your mortgage for between two and five years, but there are increasingly options for seven or 10 years, too. The general advice is to shop around to find the best deal for you.

For first-time buyers we recommend only a two-year deal,” Owen Cook, chartered independent financial adviser at Ablestoke Wealth Management says.

“After that deal ends you’re free to remortgage with another bank. If you go into a fixed-rate mortgage for five years but want to move after two you might have a penalty on that.”

If your circumstances are likely to change, it’s worth considering your options.

“If you’re buying your family home you’re much more aware that’s where you’ll be for 20 years, but if you’re a first time buyer you could be in a part of your career where you salary will likely rise, or you might meet a partner and be able to afford a bigger property elsewhere. Two years comes round quite quickly.”

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But for people worried about interest rates increasing, for example, there are a number of seven and 10 year products on the market that let you fix for longer.

“And most lender’s products are portable so you could take that mortgage and use it on another property if you think you’ll move within five or seven years,” says O’Reilly.

How much should I aim to have for a deposit?

You usually need to have at least five per cent of a property’s value saved, but essentially, the bigger the deposit the better.

“You’ll get a better interest rate, and if you’re in a position to make overpayments on your mortgage a lot of lenders will let you do this without giving penalties,” says O’Reilly. “If you can overpay by £300-£500 a month you can knock a good six or seven years off the mortgage.”

But Cook adds that it’s important to look at your finances holistically, as other personal factors can take precedent in finding the right mortgage.

“If someone has an inheritance, should they put some of it down on a deposit, borrow more and invest the rest? It depends client by client, but if you have debts in the background such as a student loan, paying that off first might be better than having a bigger deposit.”

What can I do if I am on a low income or have a small deposit?

Having a lower income or only a small deposit to start off with can make getting a mortgage feel impossible, but there are schemes to help you on your way.

First-time buyers saving for a mortgage can open a Help to Buy ISA, where you earn interest on your savings and the Government will top up your money with a 25 per cent bonus.

The amount you can get a bonus on is capped at £12,000, which means you can get as much as £3,000 added to your savings pot, to put towards a home costing under £450,000 in London.

There is also a Lifetime ISA, which has been created for people to save for their first home or for their retirement, and also provides a 25 per cent bonus.

Paying into it is more flexible than the Help to Buy ISA, but either product will make getting on the ladder that little bit easier.

The Help to Buy scheme offers an equity loan, which is only available for new builds, where the Government will lend you up to 40 per cent of the cost of a London home, which will bring your cash deposit down to five per cent and your mortgage to 75 per cent of the purchase price.

And if you can’t afford to buy 100 per cent of your home you can buy a share of it through the Shared Ownership scheme. You can get a mortgage on between 25 per cent and 75 per cent of the property and pay rent on the rest.

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