How Much Can a First-Time Buyer Borrow in the UK?

After deposit size, how much a first-time buyer can borrow is perhaps the next most frequently asked question!

Loan values are generally worked out as a multiple of your annual income. Lenders will also want to ensure that agreed repayments are actually affordable. For example, if your monthly income is £2,500 and your financial commitments are minimal, mortgage repayments of £800 month could be affordable. But if your income was £2,500 and your outgoings were £700 then your surplus income is significantly reduced, therefore likely to make the mortgage unaffordable.

If you’re applying for a mortgage as joint applicants, then financial paperwork for both applicants will be required. This ensures the lenders have the full picture of your household income and expenditure and can adjust the loan amount available accordingly.

Lenders will ask to see a variety of documents such as bank statements, proof of earnings and employment contracts in order to determine affordability.

For self-employed applicants providing proof of earnings can be more complicated. Generally, two years’ worth of business accounts are required as well as details of your personal finances and monthly outgoings. Your broker will discuss this in more detail with you.

As a rule of thumb, most first-time buyers can negotiate a loan value somewhere in the region of 4 to 5x salary.

If you use any online mortgage loan calculators, you’ll likely receive a range of values. This can be confusing and make it difficult to forecast how much you will be able to afford. To avoid disappointment, it’s always best to talk to a broker to get an actual figure before you start house hunting!

Credit Scores & Credit History for First-Time Buyers

When applying for a mortgage, lenders will look at your credit score and credit history to help them understand more about your financial situation.

Specifically, lenders will look at things like:

• Payment history
• Credit utilisation
• Financial stability

Some of the common issues facing first-time buyers include:

No Credit History

This can be a problem for younger buyers, even though they’ve done nothing wrong! No credit history means there’s no history of you taking out a loan or paying for something on credit in your own name, such as a phone contract.

Missed Payments

If you have taken out a loan in the past and missed payments, this may be visible on your credit history. This could be visible to a lender and give them cause for concern. Provided any missed payments were made may not adversely affect your mortgage application. It’s always best to be honest with your mortgage advisor about anything in your credit history which may cause problems as your application progresses.

Defaults or CCJs

This is more serious than a missed payment. A County Court Judgment (CCJ) is a court order stating you legally owe a debt. A CCJ is issued when you don’t respond to a creditor’s court claim, and it remains on your credit file for six years. This can severely damage your creditworthiness.

You can check your credit score for free.

Here are a few things you could do to improve your credit score and help your mortgage application:

• Check your credit report and seek to resolve any errors
• Register to vote – lenders often use the Electoral Role when performing background checks
• De-link from ex-partners and/or flatmates to avoid their credits score impacting yours
• Carefully manage your credit – if you have a credit card or overdraft try not to use more than 25% of the available credit and pay it off on time
• Close old and inactive bank accounts
• Avoid applying for any form of credit in the months before applying for a mortgage
• Improve your credit score with Experian Boost

Find out more about managing and improving your credit score.

More about First-Time Buyer Mortgages

Find out more about buying your first home by exploring our other helpful articles on this topic:

• What Is a First-Time Buyer? UK Definition, Benefits & Eligibility
• How Much Deposit Do First-Time Buyers Need in the UK?
• First-Time Buyer Mortgage Types & UK Government Schemes Explained
• The Full First-Time Buyer Mortgage Process: Step by Step
• First-Time Buyer Costs, Mistakes to Avoid & Why Use an Independent Broker