How much can a first-time buyer borrow?
If you’re planning on buying your first home sometime soon, once you’ve saved up a deposit it’s time to start looking at mortgages. But if you’ve never bought a property before, it can be confusing how much you could borrow for a mortgage. While 4-4.5x your household income is the typical figure you might hear, there are ways to borrow more than this! In this article, we’ll cover how much a first-time buyer can borrow, including ways to get a bigger mortgage.
How much can you get on your first mortgage?
As a first-time buyer, you can typically borrow between 4 to 4.5 times your household income for a mortgage, but you may be eligible for a smaller or larger mortgage than this. It all depends on factors like your income, mortgage affordability, credit score as well as job type. The lender you choose to go with also has an impact. There are thousands of mortgages available on the market, which is why going with your high-street bank may not offer you the best option for you. If you use a mortgage broker that compares mortgages from across the market, including specialist first-time buyer schemes which could help you borrow more or buy sooner.
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When you apply for a mortgage, the mortgage lender will carry out a series of affordability checks to make sure you can afford the monthly mortgage payments without getting into financial trouble. As part of this, they’ll look at:
- Income. This can include your income from employment, self-employment, pensions, investments, child maintenance and other forms.
- Expenses. Lenders want to know how much you typically spend each month, taking into account credit payments, utilities, food, travel and even childcare costs, if applicable.
- Savings. How much deposit have you saved? If you have a bigger deposit (and therefore a smaller Loan to Value, a.k.a LTV) this could give you access to better interest rates.
- Credit/Debt. If you have credit cards, store cards, loans, car finance or other forms of debt, these can affect your borrowing potential.
- Employment status. Lenders will want to know how stable your job is and whether your income is reliable. If you’re likely to get promoted in future, you may be offered a bigger mortgage or preferential rates, but this isn’t guaranteed. Self-employed borrowers may find it harder to get a mortgage than those in employment, but it’s certainly not impossible!
You might like: What’s the lowest LTV on a mortgage?
Can first-time buyers borrow more?
Yes, some first-time buyers are able to borrow more than the standard 4 to 4.5x income multiplier. There are plenty of budget-boosting schemes available to allow eligible borrowers to borrow a mortgage that’s 5-6x their income. Guarantor mortgages are also a way to increase your buying budget through family help. Other schemes, like shared ownership, help you afford a larger property without having to put down a large deposit or afford a larger mortgage through a part buy, part rent set-up.
Here are just a few ways to get a bigger mortgage:
1. Income Boost
Are you struggling to get a mortgage big enough for the home you want? Your parents (or other loved ones) may be able to boost your borrowing potential without giving you a pile of cash. An Income Boost lets you add someone else’s income to your mortgage application, without adding their name to the property itself. This can help you borrow a bigger loan, even if you’re the only one who’ll be living in the property. Your loved one will act as a guarantor, meaning if you cannot make the repayments, they’ll be required to step in.
This mortgage type is also known as a Joint Borrower Sole Proprietor mortgage, but we think that’s a bit of a mouthful which is why we use Income Boost instead!
2. Higher lending schemes
If you earn more than £37,000 a year (or £55,000+ as a couple), you may be eligible for a 5x Mortgage, which as the name suggests offers you a mortgage worth 5x your income. So, if you’re buying a house by yourself on a salary of £37,000, you may be eligible for a mortgage of up to £203,500. If you’re buying with your partner and they earn the same salary, your borrowing potential could effectively double to £407,000!
If you’re a key worker, doctor, vet, accountant, lawyer or you have another role that lenders consider ‘professional’, you may be eligible for a Professional Mortgage or a Key Worker Mortgage, which also lets you borrow up to 5-6x your income! One of the best things about these higher lending schemes is that you often only need a 5% deposit!
Not everyone is eligible for these schemes, so it’s worth checking if you could be accepted before applying by creating a free Tembo plan.
3. Shared ownership
Shared ownership is an innovative solution that helps first-time buyers step onto the property ladder by purchasing a share of a home, typically between 25% and 75%, while renting the remainder at a reduced rate. This approach lowers the initial deposit and mortgage you need, making it easier to afford a larger property. Plus, you’ll have the option to gradually increase your share over time through a process called staircasing.
See what you’re eligible for
There are loads of new first-time buyer schemes available - the hard part is knowing what they are or if you’re eligible! That’s where Tembo comes in. Our smart technology compares your eligibility to thousands of mortgages and budget-boosting schemes when you create a free Tembo plan. At the end, you’ll get a personalised mortgage recommendation with all the ways you could make home happen.
If you’re struggling to borrow enough for a mortgage, another way around it is to borrow less by putting down a bigger deposit. While this is easier said than done, there are ways to boost your house deposit:
4. Deposit Boost
A Deposit Boost can be a game-changer for first-time buyers who are struggling to save up a big enough deposit, or want to reduce the amount they borrow for a mortgage. It works by a loved one using a small mortgage to release money from their property - the proceeds are then gifted to you to be used as your whole house deposit, or top up what you have saved. By increasing the size of your deposit, you could access better interest rates as you’ll have a lower loan-to-value (LTV) ratio. Or, you could use the bigger deposit to put down a downpayment on a more expensive property.
This is how a Deposit Boost can help you bridge the gap between your savings and the amount needed to secure your ideal home, helping you afford properties that would otherwise be out of reach.
5. Savings as Security
A Savings as Security mortgage, also known as a Springboard mortgage, allows family members to help you buy your first home by providing savings as security. Typically, they’ll need to provide 10% of the property’s value in cash, which is then held in a savings account by the lender for a set period, normally 5 years. This reduces the deposit you need to put down yourself, and after the set time period if you can afford the property by yourself your loved ones will get their money back!
6. Forces Help to Buy
If you’re a serving member of the armed forces, you may be eligible for an interest-free loan of up to £25,000 from the government to buy your own home. The Armed Forces Help to Buy Scheme lets you use this loan as a house deposit, to pay solicitor and estate agent fees, or in some cases renovate a property. You can then take out a mortgage to cover the remainder of the property
To qualify, you’ll need to have at least 6 months’ service history. Mortgage lenders will also want to see that you can afford your monthly mortgage payments and the interest-free government loan repayments.
How much income does a first-time buyer need?
It depends on the house you want to buy, how much you’ve saved and whether you have any help from family or you’re eligible for one of the schemes listed above. The average first-time buyer needs an income of £60,600 to buy a home, but this assumes you’re buying a home priced at £250,000, with a 20% deposit and you would qualify for a mortgage worth 3.3x your salary. Thankfully, with the rise in higher lending schemes and innovative first-time buyer mortgages, it’s possible to get on the property ladder with a smaller income and even a smaller deposit.
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