Larger Deposit, Larger Mortgage?

Lou92

Hi guys, is there anyone out there that can help me answer what I thought to be a relatively simple question, but that I now believe will probably have a relatively convoluted answer? I've searched the web for this but all hits come up related to interest payments, and that's not what I'm researching right now. This is early days for me so I'm just trying to wrap my head around where I stand in this house market space.

I'm looking into first time buying at the suggestion of my parents. I should have around £20K deposit ready by April this year which appears to be slightly larger than usual for someone on my income. I earn £17k a year before tax and live and work in Leeds. Using an online calculator I was estimated I'd get around a £70k mortgage.My thinking was this would allow me to purchase a property worth around £90k when combined with my deposit. But my roommate says this isn't what lenders take into account when granting you a mortgage. She says its based on the value of the house and so even if you have a £50k deposit on a £100k house, and therefore would only need a £50k mortgage, this still wouldn't matter to them and they'd want me to purchase a property £30k cheaper. Is this true? I'm sure there's a lot of nuance to the situation so if anyone could shed some light on this it'd be great!

Cheers,
Louis

Guerillatoker

How much mortgage a lender is willing to give you is dependent on your affordability and how much they view you as a risk (poor credit, precarious employment etc). Though they will generally not lend you more than the value of the house your are purchasing, as this is their security should you fail to pay.

You would need to consider your affordability first - how much can you afford to pay on a monthly basis to mortgage and maintain your home? Just a total figure after your other bills/food/required disposable income will do.

Evaluating your risk profile isn't easy without speaking to a broker (which it may be worth doing as they will be happy to answer your questions if they think they can help you) but if you have a decent, secure job and no adverse credit you shouldn't have to consider this too much in the early stages. The riskier you are to the lender, the more LTV they are likely to require (a higher deposit).

If you can tell me your affordability I could run it through a calculator to estimate how much would be safe for you to lend, assuming you're young and in good health. Though you could do it yourself if you have a good read of the articles on the main site.

Exodi

To be completely honest, I don't understand what you've quoted your friend saying but I don't know if the message was lost in translation.

So typical banks will lend you 4 - 4.5x your gross annual income, the calculator saying you could borrow £70,000 sounds correct. Then combined with your 20k deposit, you could indeed buy a house for £90,000 as you've said (side note; if you could save up a deposit of 22.5k you would actually fall into the 75% LTV band on a £90,000 house which would save a LOT of money in interest - look up what LTV means at your leisure). If you have a £50,000 deposit, you could buy a house for £120,000 so your friend/you are getting confused somewhere.

They are however correct that mortgages are based on the value of the house and part of the mortgage process (before they agree to giving you the money) is doing a valuation on the house you want to buy.

Say, by your example above, you wanted to buy a house for £90,000 with a £20,000 deposit so needed a £70,000 mortgage. You apply for the mortgage, the house is valued, and the valuation comes back that they think the house is worth £65,000. The bank would then be unwilling to lend you £70,000 (because they want to avoid any situation where they might lose money) and so instead offers you less. Hopefully that makes sense.

getmore4less

Lou92 wrote: »

...
She says its based on the value of the house and so even if you have a £50k deposit on a £100k house, and therefore would only need a £50k mortgage, this still wouldn't matter to them and they'd want me to purchase a property £30k cheaper. Is this true? I'm sure there's a lot of nuance to the situation so if anyone could shed some light on this it'd be great!

Cheers,
Louis

Stop listening to your room mate.

LRmortgage

Your room mate it talking ****

Deposit plus max borrowing calculated on lender affordability calculator is generally the amount you can offer on a property.

amnblog

Your roommate appears to be smoking something interesting.

Deposit size can affect maximum borrowing but, as stated above, the calculation plus your deposit is your budget.

chunkytfg

My guess is your friend is getting confused with LTV limits.

Ignoring your numbers if you looked at the average mortgage from a bank then they will only lend you up to 90% of the value of the property regardless of your income. So if you have 10k for a deposit the most they will ever lend you would be 90k even if you earned £100,000 a year and could easily afford more.

Lou92

Guerillatoker wrote: »

How much mortgage a lender is willing to give you is dependent on your affordability and how much they view you as a risk (poor credit, precarious employment etc). Though they will generally not lend you more than the value of the house your are purchasing, as this is their security should you fail to pay.

You would need to consider your affordability first - how much can you afford to pay on a monthly basis to mortgage and maintain your home? Just a total figure after your other bills/food/required disposable income will do.

Evaluating your risk profile isn't easy without speaking to a broker (which it may be worth doing as they will be happy to answer your questions if they think they can help you) but if you have a decent, secure job and no adverse credit you shouldn't have to consider this too much in the early stages. The riskier you are to the lender, the more LTV they are likely to require (a higher deposit).

If you can tell me your affordability I could run it through a calculator to estimate how much would be safe for you to lend, assuming you're young and in good health. Though you could do it yourself if you have a good read of the articles on the main site.

To keep it simple, I don't spend much, but I'll errr in the side of caution. So I pocket around £1,200 on pay day each month. Around £400 goes to bills and rent and following that I only have a phone bill, Spotify, food and bits. Say £400 a month, though I don't even think its that much, that leaves me with £400 left over. I don't have any overdrafts or debt.

I'm 26 and have no health issues I'd be grateful if you were to run my numbers for me! I'm also here to learn everything I need to know about this process too however, so I'll be taking a look at the main site! Much obliged!

Lou92

Exodi wrote: »

To be completely honest, I don't understand what you've quoted your friend saying but I don't know if the message was lost in translation.

So typical banks will lend you 4 - 4.5x your gross annual income, the calculator saying you could borrow £70,000 sounds correct. Then combined with your 20k deposit, you could indeed buy a house for £90,000 as you've said (side note; if you could save up a deposit of 22.5k you would actually fall into the 75% LTV band on a £90,000 house which would save a LOT of money in interest - look up what LTV means at your leisure). If you have a £50,000 deposit, you could buy a house for £120,000 so your friend/you are getting confused somewhere.

They are however correct that mortgages are based on the value of the house and part of the mortgage process (before they agree to giving you the money) is doing a valuation on the house you want to buy.

Say, by your example above, you wanted to buy a house for £90,000 with a £20,000 deposit so needed a £70,000 mortgage. You apply for the mortgage, the house is valued, and the valuation comes back that they think the house is worth £65,000. The bank would then be unwilling to lend you £70,000 (because they want to avoid any situation where they might lose money) and so instead offers you less. Hopefully that makes sense.

That's very interesting about the 75% LTV band! My new target is £22.5k! I've read a bit about LTV now which led me onto APRC and repayment/interest only mortgages. I think I just need to read as much as possible. Thanks!

Lou92

Thanks all, some really interesting things here that should give me some direction. I'm going to hit the main site tonight and just read as much as possible to get a better understanding of where I stand.

getmore4less

Don't be too fixated on 75% different lenders have different sweet spots and there are decent 80% rates about and you will hit the lower LTV fairly quickly.