How do I know how much I can afford to spend on my new property?
A good place to start is to talk to a mortgage provider, you can do this directly with your bank who can talk you through their products or you can talk to an independent mortgage advisor/broker who will be able to discuss a range of different lenders’ products with you.
In the past mortgage lenders largely based the amount you could borrow on a multiple of your income. Since a review by the Financial Conduct Authority in 2014 this multiple has been capped at no more than four and a half times your income. A lender must also do an affordability assessment to ensure your personal and living expenses are taken into account as well as your income to ensure the monthly repayments can be met. Lenders must also look at your future ability to repay the mortgage should your personal circumstances change or assess the effect on potential interest rate rises.
The level of deposit you have to put into a property will play a large role in the assessment of the amount a mortgage provider is willing to lend. The bigger the deposit the lower the risk to the lender that the property will fall into negative equity (where the value of the house is less than the amount owed on the property)
Having a mortgage agreed in principle and therefore knowing what you are able to afford will show an estate agent and a seller that you are a serious buyer and able to proceed. In a competitive market this can be a real advantage.
8th June 2015
DISCLAIMER: Neither ludlowthompson nor their ‘experts’ take any responsibility for any action or loss incurred by readers of these pages. The reader acts on advice at their own risk. Answers to questions are not exhaustive. Financial advice must always be sought from a professional financial adviser
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