How Much Can You Borrow for Your First Home? A Guide for First-Time Buyers in the UK

For first-time home buyers in the UK, determining how much you can borrow is a critical step in the mortgage process. Knowing your borrowing power not only shapes your property search but also influences your financial planning for years to come.

The amount you’re eligible to borrow depends on a range of factors, including your income, monthly expenses, credit history, and the size of your deposit. With mortgage criteria varying between lenders, understanding these requirements can make a significant difference in how much you can secure.

This comprehensive guide breaks down the essential factors that lenders assess, from income multipliers and regular expenditures to credit history and deposit size.

We’ll also cover how additional income sources like bonuses or freelance earnings can impact affordability and offer practical tips for maximising your borrowing potential.

Whether you’re a first-time buyer or simply looking to understand mortgage options, this guide provides the insights you need to navigate the process confidently and increase your chances of securing the best possible loan.

Key Factors That Determine How Much You Can Borrow

1. Income Multipliers: The Core Calculation

Lenders in the UK typically base the maximum mortgage amount on a multiple of your annual income. Generally, this multiplier falls between four and five times your annual salary.

However, as a first-time buyer, you may be eligible for a more generous multiplier. Some lenders offer loans up to six times your annual income, which can significantly boost your buying power. This makes it essential to find the right lender, as different lenders have varying criteria for income multipliers.

2. Regular Expenditures and Financial Obligations

Your income alone doesn’t determine your borrowing capacity. Lenders closely examine your expenditures to ensure you can afford the mortgage payments alongside other financial commitments.

Typical expenses they review include:

• Existing loan repayments
• Credit card balances and minimum repayments
• Childcare costs
• Future property costs (such as maintenance or insurance for the new property)

By assessing these expenses, lenders ensure that the mortgage won’t strain your finances, reducing the risk of potential default.

3. Fixed-Rate Mortgages and Affordability

To make homeownership more accessible, some lenders relax their affordability criteria for five-year fixed-rate mortgages. This approach benefits both the borrower and lender because:

• A five-year fixed rate protects buyers from interest rate fluctuations, making future payments more predictable.
• Lenders can comfortably project affordability, knowing the buyer’s payment structure won’t vary due to rate changes during that period.

If you’re considering a shorter fixed-rate term, keep in mind that stricter affordability calculations may apply, potentially limiting the amount you can borrow.

4. Variability in Lender Calculations

Different lenders use unique calculations when assessing mortgage applications. These variations can lead to substantial differences in approved loan amounts across lenders.

For example, some lenders might consider 100% of an annual bonus as part of your income, while others may only factor in 50% of this additional income.

Working with a mortgage broker or financial adviser who has access to the full market can be invaluable, as they can help you find lenders with criteria that maximise your borrowing potential.

Additional Factors That Impact Mortgage Eligibility

1. Credit History and Application Risk

Your credit history also influences the amount you can borrow. Lenders typically adjust loan offers based on risk, meaning applicants with adverse credit may find lenders more cautious.

Common credit issues that may reduce your borrowing potential include:

• Missed payments
• Late payments
• High credit card utilisation

Lenders view a history of missed or late payments as a risk factor, which may lead them to offer a smaller loan to offset potential losses.

2. Deposit Size and Loan-to-Value (LTV) Ratio

The size of your deposit has a direct impact on the loan amount you’re eligible for, as it affects the loan-to-value (LTV) ratio.

In many cases, lenders are more conservative with loans where the deposit is below 15% of the property’s value.

With a lower deposit, some lenders may restrict the maximum loan amount, especially if your credit history isn’t pristine.

However, numerous lenders recognise the financial challenges of saving for a first home and may not reduce loan offers solely based on a smaller deposit. This is good news for first-time buyers who may have accumulated a smaller deposit and need more flexibility.

3. Budgeting for Monthly Payments

The amount a lender is willing to offer doesn’t necessarily reflect what’s affordable for your personal finances. Monthly mortgage payments should align comfortably with your budget and lifestyle. Just because you qualify for a larger loan amount doesn’t mean it’s wise to borrow the maximum.

When calculating your mortgage payments, consider:

• Your other recurring monthly expenses (utilities, insurance, personal spending)
• Long-term financial goals (saving for retirement, children’s education, etc.)
• Potential income changes (such as career transitions, starting a family, or relocation)

Ensuring that your mortgage payment fits your lifestyle will make homeownership more sustainable and less stressful over the long term.

Maximising Your Borrowing Potential: Key Takeaways

Navigating the mortgage process as a first-time buyer can be daunting, but understanding these factors can put you in a stronger position to secure a favourable loan:

1. Work with an Expert

Because lender calculations vary, working with a mortgage broker who can search the entire market on your behalf can maximise the amount you can borrow.

2. Consider a Fixed-Rate Mortgage

Opting for a five-year fixed rate can ease affordability constraints, especially if you’re concerned about future interest rate hikes.

3. Review Your Income Sources

If you earn bonuses, overtime, or commission-based income, identify lenders who consider these additional earnings in full.

4. Maintain Strong Credit

To reduce perceived lending risks, pay attention to your credit score, avoid missed payments, and pay down debt before applying.

5. Prioritise a Comfortable Monthly Payment:

While you may be approved for a high loan amount, only borrow what fits comfortably within your budget and lifestyle.

Frequently Asked Questions

1. How many times my salary can I borrow as a first-time buyer?

Typically, lenders offer four to five times your annual income, but some lenders may lend up to six times for first-time buyers.

2. Does the type of mortgage affect how much I can borrow?

Yes, lenders often have more relaxed affordability calculations for five-year fixed-rate mortgages, as these provide stability against interest rate changes.

3. Will a low deposit affect my mortgage amount?

In some cases, yes. While certain lenders reduce the maximum loan amount for deposits below 15%, others understand the challenges first-time buyers face and offer flexibility.

4. What role does my credit score play?

Your credit score can impact the maximum loan amount, as lenders may reduce offers for applicants with missed payments or other adverse credit history.

5. How do different income sources affect borrowing potential?

Some lenders count 100% of bonuses or commission-based income, while others only factor in 50%, which can impact your borrowing power significantly.

As a first-time buyer, securing a mortgage that balances your borrowing power with affordable monthly payments is essential.

While income multipliers and other factors like deposit size and credit history determine your borrowing capacity, aligning your loan with your personal financial comfort is key to sustainable homeownership.

Working with a knowledgeable mortgage expert who understands lender variations and mortgage products can further optimise your application and help you confidently secure a mortgage that suits both your current needs and future goals.