According to the Office of National Statistics, the median UK salary in 2023 was £34,963. Could you afford a mortgage to buy a home if you are on a salary of £35k per year? Let’s find out!
You’ve Decided to Buy Your First Home…in London!
So, you’ve decided to buy your first home. As you’ve been reading Inquisitive Finance, you have:
- cleared all your credit card debt
- paid off your student loans
- saved for an emergency fund.
There’s only one snag. You live and work in London and want to buy a property there.
Do you even have a chance to buy a home in an expensive city like London?
Average UK house prices decreased by 2.1% in the 12 months to November 2023 (provisional estimate), with London showing the greatest decline of 6% in all of England.
However, the average house price in London is still a very expensive £505k as of November 2023, Source: ONS.
Mortgage Affordability
The mortgage lender will ask you for various types of information to determine whether they believe you can afford the monthly mortgage payments.
Personal Information
- Your name: You’ll need to give your full name and also advise of any other names you have been known by in the past.
- ID document: Passport
- Addresses: You’ll need to provide the addresses you’ve lived at over the previous five years and provide proof of your current address e.g., by providing a utility bill dated in the previous 3 months.
Affordability Assessment
- Earnings: You’ll need to provide proof of earnings over the previous 2 to 3 years such as payslips.
- Monthly Repayments: To determine whether you can afford the monthly mortgage repayments, lenders will review and assess your income, expenses, and any loans or credit card bills outstanding.
- Credit History: They will check your credit score and credit history to see if you have paid your bills on time and have paid off any outstanding loans. They will also check to make sure you don’t have an adverse credit history such as defaulting on a loan or if anyone has registered a county court judgment (CCJ) against you for non-payment of bills, loans etc.
- How Much Can You Borrow?: Lenders usually lend you 4 or 4.5 times your gross annual salary.
Deposit
- As a first-time buyer, you will need a minimum 5% deposit of the purchase price.
- The bigger your deposit the better chance you have of getting approved for a mortgage.
- Lenders will view you as less risky as:
- the mortgage is smaller making your monthly payments more affordable.
- the loan to value (LTV) will be better meaning you get access to lower interest rates. Lower interest rates mean the mortgage won’t cost as much over the term of the mortgage.
- The deposit can be expressed as a percentage e.g. 10% of the value of the property, 20%, 25% etc. It can also be given as a monetary amount e.g., £20k or £30k etc.
- In this case, you have saved £30k deposit. If you were to buy a property for £150k, you would have a 20% deposit and 80% LTV.
Mortgage Interest Rate
- The bigger the deposit, the lower your loan to value meaning better interest rates should be available to you as you are deemed less risky by the lender.
- If you go through a mortgage broker, they often have preferential interest rates not available to the general public.
Mortgage Amount Required
- You need to specify the exact amount you want to borrow. This is determined by the property price and the deposit you have saved up.
Property Details
- You need to have found a property you want to buy and provide the details to the mortgage lender.
- It’s generally easier to get a mortgage on a house than a flat as houses are seen as less risky than flats. Flats may be above a shop, on a high floor in a high-rise block or too new.
Agreement in Principle (AIP)
You may get an Agreement in Principle (AIP) which is an offer from the lender for the mortgage you require although it’s non-binding.
UK Government Schemes to Help You Buy Your First Home
There are some government schemes that you may be eligible for which will help you buy your first home such as:
Lifetime ISA
You can invest in a Lifetime ISA (LISA) to help you buy your first home up to a value of £450k. You must be aged over 18 and under 40 to be eligible to do so. I’ve written about LISA’s here.
Shared Ownership
Shared ownership makes home ownership more affordable. You can buy a share (usually 25% to 75%) of a property and rent the rest.
As your salary is £35k you will qualify as, in London, the threshold for earnings is £90k or less (£80k or less for the rest of the country).
You will need to pay a deposit, which is usually between 5% and 10% of the share you’re buying. You can take out a mortgage to buy your share or pay for it with savings.
It’s possible for you to buy more shares later (known as ‘staircasing’) and this will reduce the rent you pay.
The amount of rent you pay will be based on the landlord’s share.
Your monthly payments could look like this:
- Mortgage Repayments: Monthly mortgage repayments will be based on your share.
- Rent: You will pay rent to the housing association’ or local council’s share.
- Service Charges: As it’s a leasehold property, you’ll need to pay service charges for maintenance of the property and communal areas.
Homes you can buy through shared ownership
You can buy:
- a new-build home
- an existing home through a shared ownership resale scheme
- a home that meets your specific needs, e.g. a ground-floor flat if you have a long-term disability
You can buy a shared ownership home via a housing association or a local council who are called ‘providers’ or the landlord.
All shared ownership homes (houses and flats) are not freehold, they are leasehold properties.
Explore Areas of London You Could Afford
Based on borrowing 4.5 times your £35k salary, you would get a mortgage of £157,500. You have a £30k deposit meaning you could buy a property for approximately £187,500. This would give you a loan to value (LTV) of 84% as:
- the purchase price is £187,500
- the deposit is £30k which is 16% of the property price
- the mortgage is £157,500 which is 84% of the property price i.e. 84% LTV.
Searching for properties in London under £190k with at least one bedroom and excluding buying schemes shows 148 properties for sale.
Some examples are blow:
So it is doable.
However, they are all flats and you do need to be flexible as to where you will live.
If you were to go down the Shared Ownership route, you could potentially get a larger property in a better location for around £350k such as the one below which says shared ownership available.
The calculations are below. You can see that the minimum gross salary required for this is £34,976 meaning you would qualify based on your £35k salary plus you have a £30k deposit to put down against the property.
Other Costs Associated with Getting a Mortgage
There are other costs associated with buying your first home.
Solicitors fees
Expect to pay between £800 and £1,500 for conveyancing fees. This should include legal searches.
Stamp duty
As a first-time buyer, you can claim relief on stamp duty. Based on your purchasing ability, you wouldn’t pay stamp duty land tax on your first home.
| Property Value | SDLT Rate for First-Time Buyers |
|---|---|
| Up to £425,000 | 0% |
| £425,001 to £625,000 | 5% on the amount above £425,000 |
| Over £625,000 | You cannot claim this relief |
Mortgage Brokers Fees
If you decide to go to a mortgage broker rather than direct to the lender you will have to pay fees to the broker. The broker’s fee can be between 0.3% and 1% of the total mortgage.
For example, for a mortgage of £150,000, a 0.5% fee would be £750.
Summary
I bet you thought at the beginning of this article that there was no way you could buy a home in London on a £35k salary. But, I’ve shown you how you can!
If you do decide to buy, then happy house hunting and best of luck with it!
Thanks for reading.
If you have just bought a property in London you can share your experiences below or ask any questions.
DISCLAIMER: Inquisitive Finance operates on principles of exchange of knowledge, ideas and opinions and learning in the community. Your decisions are entirely your own responsibility, and I am in no way responsible for your actions. I am not a financial advisor. Whilst I strive to provide accurate and up-to-date information, I make no warranties or representations as to the accuracy or completeness of this information. Use common sense, do due diligence and where necessary, use the services of a licensed financial advisor, before making any financial decision and/or transaction.
