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How much mortgage is it possible to get for an individual with a good credit history?

Being quite young, my salary is circa £24,000 per year (before tax). No savings from parents or anywhere else so I'm likely going to have to make do on my own. I'm not in a relationship either.

From having a look around, property prices in decent places (places you'd like to live in) cost £200, 000 to £450, 000. What are my options? How much am I likely to be allowed to borrow? Is there even any point with today's ridiculous prices?

  • How much of a downpayment do you have saved up? – ChrisInEdmonton Nov 2 '15 at 23:02
  • Currently - not a significant amount (about £10k). – Umair Nov 2 '15 at 23:45
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    First question: Is this something you even need? Buying a house isn't magic. You're tying up a significant amount of money in a single piece of property, you don't save that much over renting once you factor in repairs and taxes, and it makes it harder to move around. Being young, that last part is important. When you buy a house, you're basically declaring that you don't intend to move for the next 5-10 years at a minimum. If you're wrong, you'll be out a lot of money. – user3757614 Nov 3 '15 at 0:27
  • What country are you in? When do you hope to marry and have children? – Jasper Nov 3 '15 at 1:54
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    @user3757614, if you decide to move you can always rent your place out and rent something else for yourself. If prices and rents continue to go up, after 10 or 20 years you might be paying alot more rent than you would on your house repayments. It is all got to do with how you think about things. If you think like a poor man then you will always be a poor man. – user9822 Nov 3 '15 at 2:15
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There's something called the 28/36 Rule. It's a bit biased toward the U.S. tax structure, but should give you at least a ballpark estimate for what you can afford in the U.K.

The rule is that you can spend up to 28% of your gross monthly income on housing expenses (mortgage, any housing taxes, utility fees, etc.). And no more than 36% on total debt.

In your example, you make £2,000 gross income a month. That means you can afford up to £560 on housing (rent or mortgage, plus all taxes and utilities). You can afford up to £720, or an extra £160 (if paying the full amount on housing), on debt. That debt may be credit card payments, car loans, that sort of thing.

I'm not sure how much your utilities and housing taxes would come to in the U.K. Let's optimistically say only £60 per month. That leaves you with £500 for a mortgage payment. With that, you could afford roughly a £100,000 mortgage, on a 25 year-term.

That roughly matches my personal rule-of-thumb (in Canada), which is that the upper limit you should consider is roughly 4 times your gross salary, assuming you have no significant debts.

Now, you can go with a longer mortgage term. In Canada, the upper limit is 30 years, but it looks like longer terms may be available in the U.K. That would lower your monthly rate by a bit, meaning practically you could afford a slightly larger mortgage.

Barclays Bank claims they'd consider lending you up to £107,760 based solely on an income of £24,000 per year. Looks like they'd require 10% downpayment, which again indicates roughly that you can afford approximately £100,000 (except not, because you'll need to pay closing costs). If houses in your area cost £200,000 to £450,000, I'm afraid they are well outside your price range.

By comparison, when I bought a house seven years ago, I was looking at roughly $300,000 - $400,000 (dollars, not pounds). Our combined income was somewhere around $150,000 at the time. We could afford our price range but I wouldn't say it was easy.

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You might be able to purchase a home "on a layaway plan". Here are a few possibilities:

  • Lease a home, with an option to buy.
  • Buy a vacant lot. Install an affordable mobile home. If you need more space, add more sections to the mobile home.
  • Buy a vacant lot. Build a house on it.
  • Buy a small home on a large lot. Later on, build a larger home in an empty part of the yard.
  • Buy a small house. Later on, expand the house.
  • Buy a small condominium. If an adjacent small condominium becomes available, buy it, and remodel the two units to combine them.

Most of these options require approvals (e.g., from a planning department and/or a condominium owners' association). England's planning rules are much stricter than America's zoning laws.

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    In the UK, the only one of these that is common is #5 (extending your house). There are government schemes for #1 in certain areas; for #2, few people live in mobile homes (and finding land can get political...); #3 requires a lot of upfront cash, and getting permissions - and finding land - is hard; #4 is similar; plus in cities, plots are typically not big enough. #6 is possible, though uncommon. – Steve Melnikoff Nov 3 '15 at 8:44

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