You've spoken to a mortgage adviser, checked your deposit and discovered how much you could potentially borrow.
Great. But now comes another question:
Should you actually borrow that much?
If you can afford a £400,000 property, should you stretch your budget and buy the best home you can? Or would you be better buying for £350,000 and enjoying lower mortgage repayments?
It's a question many homebuyers face, particularly when buying their first home or moving up the property ladder.
And, unfortunately, there's no magic percentage that gives everyone the right answer.
How Much Mortgage Can I Afford?
The first thing to understand is the difference between how much you can borrow and how much you feel comfortable borrowing.
Mortgage lenders assess affordability using your income, regular expenditure, existing debts and other financial commitments. They'll also carry out checks designed to make sure the mortgage is affordable.
This determines how much they're prepared to lend you.
But your maximum mortgage isn't necessarily your personal budget.
You still need to think about the lifestyle you want once you've moved in.
A bigger mortgage might get you an extra bedroom, larger garden or your preferred location. But if the monthly repayments leave very little money for holidays, savings, hobbies or unexpected expenses, is the bigger house worth it?
Only you can answer that.
The Argument for Buying the Best House You Can Afford
There's certainly a case for stretching your budget, provided the mortgage remains comfortably affordable.
Buying a property that meets your longer-term needs could mean you don't need to move again as quickly.
For example, perhaps you're planning to start a family. Spending a little more now for an additional bedroom, bigger garden or better location could potentially save you the cost and disruption of another house move in a few years.
Buying in a more desirable area could also provide stronger demand when you eventually sell, although future property price growth can never be guaranteed.
And sometimes spending more simply gets you the home you genuinely want.
There's nothing wrong with that, as long as the finances stack up.
The Argument for Borrowing Less
Just because a lender says you can borrow £300,000 doesn't mean you have to.
Choosing a smaller mortgage loan can reduce your monthly repayments and potentially save a significant amount of interest over the mortgage term.
More importantly, it can give your household finances some breathing room.
Lower mortgage payments could mean more money available for savings, pensions, holidays, childcare, home improvements or simply enjoying everyday life.
It can also provide a useful financial buffer.
If your household income changes or your expenses suddenly increase, a mortgage that's comfortably below your maximum affordability may be easier to manage.
Don't Forget the Other Costs of Buying a House
One common mistake is focusing entirely on the mortgage payment.
Owning a bigger or more expensive property can mean higher costs elsewhere too.
Council Tax, energy bills, insurance, maintenance and repairs can all increase depending on the property you choose.
Then there are the initial costs of buying a house, which might include Stamp Duty, solicitor fees, surveys, mortgage fees and moving costs.
And let's not forget furnishing it.
Getting the keys to your dream four-bedroom home isn't quite as exciting when you realise you've only got enough furniture for a two-bedroom flat!
What Happens If Mortgage Rates Rise?
This is where it's worth looking beyond today's monthly repayment.
If you're choosing a fixed-rate mortgage, ask yourself what could happen when that deal ends.
Imagine your mortgage costs £1,500 per month today. Would your finances still work if, at some point in the future, that became £1,700?
Nobody knows exactly where UK mortgage rates will be in two, five or ten years.
That's why leaving some flexibility within your monthly budget can be valuable.
Think About Your Deposit Too
Putting more money into a property and borrowing less can also reduce your loan-to-value (LTV).
Generally, a lower LTV can give borrowers access to a wider range of mortgage products and potentially more competitive mortgage interest rates.
But putting every penny of your savings into your deposit isn't necessarily sensible either.
Once you've bought the property, having an emergency fund can be incredibly useful. Boilers break. Roofs leak. Cars need replacing.
Keeping some savings available can stop an unexpected expense becoming a financial headache.
Find Your Comfortable Number, Not Just Your Maximum
Perhaps the best way to approach the decision is to forget your maximum mortgage for a moment.
Instead ask:
What monthly mortgage payment would allow me to own the home I want while still enjoying the lifestyle I want?
Then work backwards.
Consider your mortgage payment alongside your normal bills, savings, pensions, childcare, holidays and other priorities.
It's also worth stress-testing your budget against higher costs or a change in circumstances.
So, Should You Buy the Best House You Can Afford?
Possibly, but ‘can afford’ shouldn't simply mean the maximum a mortgage lender will give you.
If stretching your budget gets you a home you'll happily live in for many years and the repayments remain comfortable, borrowing more could make sense.
Equally, there's nothing wrong with buying below your maximum budget.
A slightly smaller home combined with lower monthly repayments, more savings and greater financial flexibility might ultimately make you happier.
The goal isn't to get the biggest mortgage possible.
It's to find the right balance between the home you want and the life you want to live once you've bought it.
At HLC Mortgages, we help buyers and homeowners understand which is the right choice for them. We have access to the whole market and will explain everything in plain English, handle all the paperwork and help you understand what options may be available to you.
Contact us today!
Your home may be repossessed if you do not keep up repayments on your mortgage.