Your IDEAL questions answered.

The housing market’s trials and tribulations certainly aren’t at the top of most people’s agendas right now. But while the only thing that’s certain right now is that we’re living in uncertain times, we still have to stay positive. 

One area that’s come to a halt over the last few weeks has been buying a new home. Indeed, the coronavirus has wreaked havoc on the housing market. In time, though, we’ll be back viewing homes and applying for mortgages. It’s important to note, then, that this post is based on all pre Coronavirus figures.

But for now, if you’re looking to get ahead of the game and well informed for when the housing market is open for business once again, then read on; here’s your IDEAL questions answered on how much you need to earn to get a mortgage of £250’000.

WHAT’S THE AVERAGE HOUSE PRICE ROUND HERE?

The average house price in the UK is £231,185, so a mortgage of £250,000 would be a little above average. If you’re hoping to get on the property ladder and wondering how much you’d need to earn to be able to afford a £250,000 property, then read on. 

We’ll also look at how long it will take you to pay off a £250,000 mortgage and how much you can expect to pay every month. And finally, we’ll look at how much deposit you will need to save for a £250,000 mortgage.

CAN YOU CUT TO THE CHASE PLEASE?

Unfortunately, there isn’t a clear answer to the question “how much do I need to earn to get a mortgage of £250,000?” This is because lending decisions will vary by lender. And lenders will also look at each application individually. This means that someone earning an identical salary to you could find it easier or harder to secure a £250,000 mortgage. If you’d like a more detailed breakdown, Point Me To are experts here, and will point you in the right direction of mortgage brokers who have expertise in the divergent factors affecting the final decision.

To understand how mortgage decisions work, we first have to look at the factors lenders will consider. These include:

  • Your earnings
  • Your source of income
  • Your savings
  • Your credit score and history
  • Your deposit

I’LL ASK PLAINLY & SIMPLY, ONE MORE TIME FOR GOOD MEASURE: IN IDEAL CIRCUMSTANCES, HOW MUCH DO I NEED TO EARN TO GET A MORTGAGE OF £250,000?

If you find a lender willing to give you 5 times your annual salary, you would need to earn £50,000 a year to be able to borrow £250,000. If the lender is only willing to lend four times your annual salary, you would need to earn £62,500 per year to meet the threshold.

In a joint mortgage application, this could be split between two people, so one could earn £30,000 while the other earns £20,000 per year. If you’re self-employed or running your own business, your lender would only consider your profit and not your entire income.

HOW MUCH DEPOSIT WOULD YOU NEED?

It’s worth remembering that you might not need to borrow £250,000 if this is the value of the property. On a property of this value, the lender would expect the buyer to provide a deposit, whether it’s your first investment or you’re buying a second home. The deposit is typically between 5-25% which would decrease the amount you are borrowing by between £12,500 and £62,500. 

With a 25% deposit, you would only need to be earning £46,875 per year to buy a house worth £250,000 on a mortgage that is 4 times your annual salary.

However, with only a 5% deposit, you would need to be earning £59,375 per year to buy the same home with a mortgage that is 4 times your annual salary. 

This is why the value of your deposit is so important.

HOW MUCH WILL MONTHLY REPAYMENTS BE FOR A £250,000 MORTGAGE?

Another thing to consider will be your monthly repayments. Lenders will want to make sure you can always meet your financial obligations, so your monthly incomings and outgoings will be carefully scrutinised.

Your monthly repayments will vary depending on the type of mortgage you choose and the rates you are offered.

For example, to purchase a £250,000 house with a 20% deposit over 25 years with an interest rate of 3.5% and mortgage fees of 3% you would pay £1,032 per month. The total repayable would be £309,491.

To purchase the same home with a 25% deposit over 30 years with an interest rate of 3.5% and mortgage fees of 2.5% you would pay £863 per month. The total repayable would be £310,807.

While you might be able to reduce your monthly payments, increasing the loan term will increase the total amount you have to pay back over time. 

Small changes to your application can have a huge impact on your monthly finances, which is why it is so important to seek specialist help when applying for a mortgage. Working with a mortgage broker, such as those available through NicheMortgageInfo can help you to secure the best possible deal on your mortgage.