How Much Do I Need to Earn to Get a Mortgage of £250,000?

Owning a home is a big milestone for many Brits.

A home is more than a roof and 4 walls; it’s where memories are created, accomplishments are celebrated, and futures are shaped.

A different level of security, freedom and pride comes with homeownership, which is hard to attain while renting.

But before you begin hunting for your dream home, you should first know how much you can borrow in order to fund it.

Property prices across the UK have almost tripled in the past 2 decades.

Rising house prices may result from the rising demand for available property, local investments resulting in an increase in amenities or the reputation of an area improving.

The outcome is higher value mortgages being required for potential buyers.

In January 2021, the average UK house price was £249,000, so a mortgage of £250,000 would be a little above average.

Read on if you’re hoping to hop on the property ladder but are questioning how much you’d need to earn to be able to afford a £250,000 property.

We’ll also look at how much a £250,000 mortgage will cost you.

How Lenders Assess What You Can Afford

Like other financial product applications, each mortgage lender sets its own borrowing criteria and they assess each application individually. This means that someone earning the same salary as you could find it harder or easier to secure a £250,000 mortgage.

The likelihood of you getting a £250k mortgage will depend on several factors, but prominent points that lenders focus on are your:

  • Source of Income

Potential lenders will review your income level as well as the consistency of your income.

Income will help them determine whether your salary will allow you to keep up with your mortgage payments.

You will be required to submit proof of income via documentation such as payslips and bank statements.

Lenders prefer borrowers with steady, predictable sources of income. Some jobs or contract types are deemed riskier than others.

Lenders will look favourably at professionals believed to be high earning and in secure roles.

You also have a better chance if you’re in permanent employment as opposed to a temporary contract.

  • Financial History and Current Credit Score

Your credit score plays a big part in how much you can borrow.

Missed loan repayments, CCJ’s or bankruptcy will adversely affect your credit score for many years.

Some mortgage providers will not accept an applicant who has experienced adverse credit issues, but others are happy to accept even the most serious of issues.

It generally depends on the timing and/or severity of the issue.

Discuss matters with a mortgage adviser if you have concerns about your history of managing personal finances before you apply.

  • Affordability

Lenders will be interested in knowing whether you can truly afford your repayments not just on paper but also in practice.

You should be able to comfortably repay the mortgage when you take it out. In case of future unanticipated events (such as interest rate rises or changes in circumstances), they won’t put your home in jeopardy.

To determine your affordability, lenders will access your current (personal and living) expenses and outgoings.

  • Loan-To-Income Ratio

This is the total size of your mortgage loan versus your annual income.

As a rule of thumb, you can borrow up to 4.5 times your income – so in theory, combined earnings of around £55k should enable you to get a £250k mortgage.

However, in some cases, lenders may offer less or in other cases, more than this amount.

  • Property Loan-To-Value (LTV) Ratio

This is basically your mortgage’s size balanced against the value of the house or property you want to buy.

LTV is typically explained as a percentage.

For instance: If your mortgage was £200,000 against a £250,000 property, then the LTV ratio is 80 per cent. The remaining £50,000 is made up by the deposit.

Most residential mortgage providers offer 80-85 per cent mortgages, so you should be able to borrow up to four and a half times your annual income if you have enough deposit to cover 15-20 per cent of the property cost.

A lower LTV (larger deposit) may give you a wider variety of lender options as it gives lenders added reassurance of your commitment. A high LTV ratio will be more restrictive.

  • Age

Older applicants are seen as higher risk than their younger counterparts.

In fact, some mortgage providers have a cap on the maximum age they lend to (typically 55).

Others have a maximum term limit and won’t consider you if you’ve entered retirement.

What Will A £250,000 Mortgage Cost Me? 

The amount of deposit provided, the interest rate and your repayment period are the 3 main factors that will determine the cost of your mortgage repayments.

A fixed-rate mortgage implies that your repayments will be the same for the entire term. If, however, you’re on a variable rate mortgage, expect your interest rate to change.

25 years is the standard mortgage repayment period, but it’s possible to secure a shorter or longer term. A shorter repayment term normally translates to higher monthly repayments since it means you have a shorter period to pay back the loan. That also means you’ll be paying back a smaller amount in total.

The Takeaway

Higher LTVs are more common due to the surges witnessed within property prices over the last couple of years.

As discussed, lenders set strict criteria that need to be met before offering high-value mortgages.

Mortgage affordability experts have access to the whole market, rather than just high street or online lenders. They can help you to secure the best possible deal on your mortgage.

If you like anything in this article or you’d like to know more, call us today on 07834 818805 or send us an email at [email protected] for a free, no-obligation consultation.

One of our advisors will talk through all of your options with you and will help you with every stage of your application.

How KB Mortgage Services can help:

Note: Your home may be repossessed if you do not keep up repayments on your mortgage. Fees may be payable at a later stage.

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