How To Know How Much You Can Afford When Buying A New Home

There are lots of things to consider when it comes to buying a new home. Whether you are a first time buyer or looking for your next home there are some key criteria to identify prior to beginning your search for your dream home. 

Affordability is at the forefront of search criteria and should be the first decision you outline before starting your search. It will help you streamline where you can afford to live and the style of homes which best suit your budget.  

Here are some key things you can do to help you determine your ideal home price. 
Work Out Your Ideal Mortgage Repayments 

If you are in private rent accommodation or already have a mortgage then your current monthly payments should give you a great starting point to figuring out how much you can afford to pay in mortgage repayments. Assess your current outgoings – are you putting money aside every month or struggling to keep up with payments? It can be intimidating but sit and work out all your monthly outgoings vs income and work out if you could afford to up your current outgoings or want a mortgage for less than what you pay in rent.  Once you have a figure in mind, it will help you work out the type of mortgage you can afford. 
A mortgage calculator will allow you to enter in your incomings and help determine what you can afford to borrow from a lender. If you have a small deposit, then this figure will give you a rough guideline to the house price you can afford. Otherwise, add your deposit to this figure. For example, if a lender will allow you to borrow £240,500 but you want a house for £300,000 you know you will need £59,500 as a deposit. Some calculators will ask of a property value – have a play around with the figures until the mortgage repayments look like for you. 

Work Out How Much Deposit You Can Afford 

Working alongside monthly mortgage outgoings, knowing how much of a deposit you have will help you determine what you can afford. As a general rule, the more deposit you have the higher the value of property you can afford. The amount of deposit will also determine your Loan to Value (LTV) percentage. The lower you’re LTV, the more likely it is that your mortgage application will be successful as the lender is taking less of a financial risk. Under the help-to-buy scheme, you could put down as little as a 5% deposit on your home, but it’s worth bearing in mind that the lower the deposit, the more your monthly outgoings will be. 


Mortgage rates are continually changing and vary depending the fixed rate you chose to go with. Variable rates are available, but it does mean you won’t know how much you will be paying each month. Rates on two, five and ten year fixed deals fell to an all-time low at the start of this year but have been on the rise ever since. Having a knowledge – no matter how limited – of current rates will allow you to determine when the best time to buy is as you could potentially get more for your money.

Recce Preferred Locations

It’s a well-known fact that location is everything when it comes to house price. Working out where your ideal location is will help you evaluate how much you can afford in that area. Look at current house prices and how much you can get for your money in and around the area – you might find that being just 10 minutes from your desired location will allow you to get so much more for your money.  Decide what is more important to you – the number of bedrooms and facilities in the home or its location and you will be able to deduce how much you will need a mortgage for. 

Anticipate Any Lifestyle changes 

We can’t write the future, but when assessing affordability it is important to try take into consideration any future plans which may affect your income. This can include major lifestyle changes such as planning for a baby, getting married, potential redundancies, retirement and promotions. You may be able to afford more or less than you think taking into consideration these potential factors. 

If you are confused about how much you could afford to buy a new home for then book an appointment with a local lender or a mortgage advisor – they will be able to work through your finances with you and give you an ideal figure for your mortgage. 

Publish date: 22/02/2016