Choosing max budget

earthquakebird

Hi, I have a deposit ready and am looking to start my serious house-hunt soon. I'm wondering how to pitch my Min and Max house prices - is it better to have a bigger deposit (lower LTV) on a cheaper house? Or aim for a more expensive house but therefore have a smaller deposit (higher LTV)?

I've used mortgage affordability calculators but not sure at what point I would become high risk to a lender. At the moment, I'm paying £600 in rent and ideally would like to have a similar figure in mortgage payments. How can I determine how much I can stretch myself to?

Thanks in advance.

mije1983

Mortgage calculators will give you a rough idea of what you can borrow. That, coupled with your deposit is your max budget.

Your minimum budget will be set by the area you want to live, and the type of property you want.

The lower the LTV, the better the rate. So if you get a 65% LTV mortgage, that will be on more favourable terms for you than a 90% one.

If possible, I would look to be spending less than your rent on the mortgage,. After all, you will have to fund any repairs etc out of your own pocket rather than getting the LL to get it fixed. Plus it will give you room to breath when the interest rate rises.

Ben_Fogles_Dog

From what you've said you have already decided what you want to pay - £600 a month?

Admittedly I bought my first (and only) house 20 years ago but back then the key thing for me was could I afford it when interest rates rose. This might seem a long way off today but I always asked what the repayments would be if they reached 15% (the historical high a few years before I took the mortgage out).

I ended up borrowing approximately 70% of the maximum I was offered. That might seem extreme but on the plus side we repaid the mortgage in a little over 8 years, that might not be possible nowadays but borrowing a comfortably affordable amount will put you in a much more comfortable position when interest rates begin to rise (I think some people have got so used to low rates that they forget that the historical average since 1970 is a touch over 7%)

earthquakebird

Thanks. I would prefer to err on the side of caution too, as I know it's likely that rates will rise.

The £600 figure is based on my current rent, but actually this is quite low relative to my income (I moved to a cheaper area in order to save more towards my deposit), so in reality I could probably spend a bit more but don't want to overstretch.