Is getting a 10% deposit mortgage impossible on £26k a year?

EasyToAssemble01

I'm currently saving a deposit to buy, and was initially under the impression that I might be able to get a mortgage with a 10% deposit. But after using a few bank's mortgage calculators, the mortgage amounts being offered fall very short of what I would need. Going by their estimates, I would need a 30% deposit to afford anything.

To give some ideas of figures, I'm currently earning £26k per year, and the area I am looking at (West Midlands) the house prices start around £180k for a 2 bed terrace or 2 bed flat.

Is it a case that these mortgage calculators just give out the estimates those banks are willing to lend? Or is it likely that I would need to save a much bigger deposit? Is it worth speaking to a mortgage advisor just to see what I could actually qualify for?.

Any insights from recent first-time buyers on similar salaries would be ideal. Of course, my mileage will vary, but it would be an ideal yardstick.

MWT

30% looks about right if you are trying to buy at £180k on a £26k salary unfortunately.

Have you considered the 'Help to Buy' scheme?

400ixl

The calculators will likely be basing the affordability on a salary multiplier and then you would need to be able to provide the difference with a deposit (and there is always a minimum loan to value deposit)

So for example you earn £26k and they will only lend a maximum of 5x salary, that would be £130k leaving a shortfall of £50k against a £180k house. Therefore you would need to find around a 28% deposit.

The 5x salary is just a value, different providers will have different calculators.

steampowered

To get a mortgage you need to have a deposit and you need to pass an affordability test. The banks want to be sure that you are earning enough to be able to afford the mortgage repayments even if interest rates go up.

Banks will usually only let you have a mortgage for 4.5x your salary. Sometimes you can borrow a bit more but that's the yardstick. 

As you are earning £26k, most banks are only willing to lend you about £117k. Regardless of the size of your deposit.

Some banks might be willing to lend you a bit more. It could be worth speaking to an independent mortgage broker, and trying the affordability calculators on different bank websites. 

ACG

You can lend around 4.5x income. Possible a little more, possibly a lot less depending on your circumstances. 

£26k x 4.5 is £117k. Add on your sort of £12k gets you to £130k. 
£180k property is not achievable on a £26k income. 

If it is of any use I bought my first home in 2013 for £84k and I was on £17k a year. It was an absolute hole. Avocado bath suite, kitchen from the 70s, one working plug socket, storage heaters - so no gas and only 1 working plug socket in the whole house... 

But I bought it, I did it up (rewire, bathroom and bedroom more or less in the first fortnight), the rest i did over the following 2 years. I sold it after 4 years for £155k. I made about £55-60k on it, which then allowed me to buy where I wanted to. 

Basically, dont let it put you off. Keep saving and keep looking and something within your budget will probably pop up. You might have to widen your area, lower your expectations (or both) but it will probably be cheaper than renting. 

EasyToAssemble01

MWT said:

30% looks about right if you are trying to buy at £180k on a £26k salary unfortunately.

Have you considered the 'Help to Buy' scheme?

I think Help to Buy will be my only option at this point. Hopefully, it's not something that's going to be a trap tying me to that property in perpetuity. I think independent financial advice is the way forward, just to find out if there's any pitfalls in HTB, as well as working out what my available options are.

anotheruser

Start saving in help to buy.
It's effectively a saving account that the government will (did?) give you free money if you save the right amount.
Drip feed it from your actual savings account to get the right values going in.

Also, look somewhere cheaper.
There are cheaper areas within the West Mids.
Remember, it's your first home, not somewhere to live for the next 50 years.

We did not find any pitfalls in HTB - we saved the £250 a month in it (transferred money from a savings account), which the government topped up by £50 (I'm sure it was this!).  It was an extra £50 a month.  Our solicitor (find one a friend recommends) dealt with the HTB for us transferred and closed it.

We only had a 5% deposit, which I appreciate are hard to come by now.  4 bed house bought at £140k but that's in the country rather than city so prices are a lot better there.  Just so happens the 4th bedroom is in it's own annex with a bathroom, that is connected to the house but also has it's own front door (in a tasteful way) (converted garage with a small extension to it).  With Covid, people have been looking for these sorts of spaces (that can also be used as a home office) so selling will likely be very easy for us.

MovingForwards

@anotheruser help to buy (savings) closed a few years back, it's LISA's now for sub-40 year olds.

OP, many of us look to other areas we can afford to buy in, even buying a starter property, saving again while paying the mortgage off and look to move up the ladder as income / savings increase.

jcrennie

I had a similar type of situation and salary at the time on 27.5k, without wanting to mess about with bonus etc. I just kept it to straight salary, but the max I could lend was 122k pretty much anywhere.

The advice about looking outside your area is good - it wasn't something I ever considered, but I found somewhere for 160k and put down the rest with my deposit in the end, which was a 1 bed flat, with room for potential. Really difficult out there for FTBs alone, the market is stacked against us. Could you not buy a 1 bed flat/apartment somewhere? I was so fixated on 2 bedrooms to begin with, but you don't need a 2nd bedroom and as long as the location is good, 1 beds always will have good potential.

EasyToAssemble01

jcrennie said:

I had a similar type of situation and salary at the time on 27.5k, without wanting to mess about with bonus etc. I just kept it to straight salary, but the max I could lend was 122k pretty much anywhere.

The advice about looking outside your area is good - it wasn't something I ever considered, but I found somewhere for 160k and put down the rest with my deposit in the end, which was a 1 bed flat, with room for potential. Really difficult out there for FTBs alone, the market is stacked against us. Could you not buy a 1 bed flat/apartment somewhere? I was so fixated on 2 bedrooms to begin with, but you don't need a 2nd bedroom and as long as the location is good, 1 beds always will have good potential.

I would consider looking elsewhere, but I live in a pretty inexpensive city (Coventry) anyway. I can definitely look at 1 bed places. My ideal scenario was to get a cheap 2 bed terrace, and rent out the 2nd room, immediately clawing back some of the cost. But, that seems unrealistic now.

I think it's just the 2021-22 jump in prices that's really irritated me. Any deflation - although good for me - will never be steep enough for it to make any difference. 

EasyToAssemble01

anotheruser said:

Start saving in help to buy.
It's effectively a saving account that the government will (did?) give you free money if you save the right amount.
Drip feed it from your actual savings account to get the right values going in.

Also, look somewhere cheaper.
There are cheaper areas within the West Mids.
Remember, it's your first home, not somewhere to live for the next 50 years.

We only had a 5% deposit, which I appreciate are hard to come by now.

HTB exists as a loan now, but only on new builds on approved developments participating in the scheme. It's up to £20k interest-free for 5 years - and allows a 5% deposit - but that still doesn't cover my mortgage shortfall, unfortunately.

I think I'm already somewhere fairly cheap as-is. Only place cheaper might be Nuneaton, lol. Which gives you an idea of how crazy prices have gone in the last few years.