Saving a deposit is just one part of the puzzle when it comes to buying your first home.
You also have to show the bank that you’ll be able to afford the mortgage payments. Usually that means two things: a relatively unblemished credit record, and a salary that meets the minimum income requirements.
Typically, banks will offer around 4-4.5x your salary as a mortgage. So, for someone earning £30,000 (roughly the average UK income), a mortgage of £150,000 would be available at the upper end. Add your deposit amount and this gives you your budget for buying a house.
With house prices rocketing, this has made things tricky. Many people have found themselves unable to afford a suitable home within their area. One solution is the Helping Hand mortgage from NatWest. This deposit a mortgage of 5.5x salary. So for our 30k earner, the available mortgage goes up to £210,000.
Traditionally you would have needed a ten percent deposit on top to secure this kind of deal for your home, however now NatWest have announced that they can offer the scheme for people with a 5 percent deposit (what’s also known as ‘95% loan to value’).
The idea is to support those people who can easily afford a mortgage from their regular income, but due to high rent costs and other living expenses have been unable to save a sizable deposit. It also reflects the fact that house prices have been rising steadily over recent years, with many first-time buyers finding themselves priced out of their neighbourhood.
While saving a bigger deposit would be one way to deal with this issue, it isn’t always possible when house prices are rising faster than the rate at which many people can save. The average house price is now £288,000 – so for a ten percent deposit you’d need more than £28k in your kitty.
However, buyers should also think carefully before taking out a bigger mortgage. A mortgage is a serious, long-term commitment, and locking yourself into higher payments can make it harder to keep up with. Banks will typically only offer 4.5x salary because this is seen as an amount that’s reasonable for people to budget for. Taking more is certainly doable, but it needs to be considered and budgeted for.
So are bigger mortgages better for first time buyers? There’s no fixed answer. For those who have the means to save – perhaps because you’re able to live with parents or work a lucrative side hustle – putting together a bigger deposit can lead to lower costs in the long term. And if you’re willing to compromise on your location or the size of your first home, buying a less expensive property is also a good way to avoid overwhelming yourself with mortgage payments.
But if these options aren’t available, then bigger mortgages such as Helping Hand are certainly very viable. While they’ll lead to bigger monthly payments, the bank will still run affordability calculations to help make sure you have enough income to cover the debt. If getting onto the property ladder is your dream then this can be a great way to start climbing the rungs.