How much can you borrow?
Before looking for a home, it is sensible to calculate your budget. The mortgages available will largely depend on your income.
Typically, mortgages will be based on 3.25 times the gross income of a single borrower. For joint borrowers, the maximum loan is likely to be 3.25 times the first income, plus one times the second income, or 2.5 times joint income.
To set the top price you can afford to pay for a home, add on the cash you have available for a deposit. The size of the loan expressed as the percentage of the purchase price or valuation of the home is called the Loan To Value (LTV). If you have no deposit you will needo to look at a 100% mortgages.
However, you cannot use all of your spare money as a deposit. You will need to take into account all the additional upfront costs involved in purchasing a property. The legal aspects of purchase cannot be ignored - stamp duty kicks in at 1% of the purchase price on properties costing more than £60,000 to £250,000.
Properties costing more than £250,000 and up to £500,000 are charged 3% stamp duty, while properties costing more than £500,000 are charged 4%. And you'll have to pay solicitors fees.
You may have to pay an application fee for a special mortgage deal plus, perhaps, an arrangement or completion fee when you finally take the loan. And watch out for Mortgage Indemnity Guarantee (MIG) charges - a form of insurance that protects the lender, but is paid for by the borrower. If there is a charge for this, it may be added to the loan, or could be payable over the early years of the loan.
And don't forget to budget for valuation and survey fees. Finally, it is worth finding out what refunds or cashback lump sums are available from the lender and look out for lenders who keep fees to a minimum.
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