How much should you spend on your first home?


Buying your first home can be nerve-wracking, exciting and exhausting all at the same time.

When working out how much you can afford to spend on your first home, it can be tempting to view houses that are at the very top of the maximum figure you are allowed to borrow.

Is this really wise though? One bit of parental advice that has stuck with me all of these years is that you should buy the best that you can afford.

When it comes to buying a house, though, what you can truly ‘afford’ can often become distorted to mean the maximum amount that a mortgage lender says you can ‘afford’.

So, what factors should we consider when deciding on a budget for our first home purchase?

Quality of Life

Sure it can be great to have a fantastic house in an enviable location. If in order to afford this dream house it means that all you can afford to do is sit inside it, eat bread and drink water, then is it really all that great?

Buying a home and taking on a mortgage is a huge step. This step can often be accompanied by a slightly decreased standard of living. This is normal with the increased outlay on your new mortgage coupled with the inevitable cost of making your new house a home and then maintaining it. How much of a decrease in lifestyle you are willing to accept is your call. It is certainly something that needs to be carefully considered, though.

When working out how much you can really afford to budget on a monthly basis for mortgage payments, be sure to leave a little room for enjoying life too.

Yes by getting a mortgage you are investing in your future and this may mean you have to sacrifice a 24/7 party lifestyle as a result. This doesn’t mean that you have to mortgage yourself up to the hilt and give up on enjoying life completely, though.

Future Interest Rates

We all know that interest rates are at an historical low at the moment but they are not going to stay that way forever. But what happens when you come to remortgage your new home in 2, 3 or 5 years time? Sure you may be able to comfortably afford the repayments now but could you afford them if interest rates were to rise 2, 3 or 4 percent?

Such a small fluctuation in interest rates could affect your future mortgage payments by hundreds of pounds per month. I think most people would agree that a ‘normal’ level of interest rates would sit somewhere around the 5%-6% mark. Take a moment, then, to work out how interest rates at this level might affect your mortgage repayments in the future?

What happens if?

If we only think of every negative thing that might happen then nobody would ever do anything. This being said though, I still think it’s worth considering what your financial position would be like in the event of a job loss, an unexpected addition to the family or some other life event of this sort.

Does your mortgage budget allow room for any of these life events? Is there room in your maximum budget for an emergency fund to see you through events like these? If not then perhaps it could be worth reducing your expectations and revising your budget.

Borrow only what YOU can afford  

Just because you have a stellar credit score enabling you to borrow up to 5 times your salary it doesn’t always mean that this is a wise move. Instead it would be better to sit down and think about what you can truly ‘afford’ in order to at the same time live some kind of a normal life.

Yes there may be sacrifice involved in order to buy a nice house in a nice area but how big will this sacrifice be? Will you still be able to live a happy and enjoyable life? If an honest look at the figures says that you won’t, then perhaps a slight reduction in budget may be in order.

You may have a £20,000 credit limit on your credit card but that doesn’t mean you have to spend it all, does it? You may be entitled to a £30,000 car loan but does that mean you should buy a £30,000 car? In the same vein then, just because a bank is willing to lend you up to five times your salary, this doesn’t mean that it would be always be wise to buy a house for this amount.

Instead, why not give some thought to just how much financial pressure this level of borrowing would place on your current or future finances and then borrow what YOU can afford to borrow and NOT what a bank says you can afford.

8 Responses to How much should you spend on your first home?

  1. One thing to take into account (outside the financial aspects you listed above) is how long you’re going to be there. We bought our first house not really knowing what we wanted in a home. After a few years of actually living in a house we had a much better idea of what would best fit our lifestyle. No sense in dropping as much as you can into your first house when you may indeed move in just a few years.

    • Adam Buller says:

      That’s very true Brock and it kind of makes you think about the family planning aspect more too. It would be pointless customising a house to your taste if you then had to leave it due to a new arrival! Accidents do happen of course 😉

  2. Kathy says:

    I hate it when realtors know the top dollar amount a buyer can afford yet takes them to see wildly higher priced homes and explain that they’ll really like all it has to offer. HELLO! They can’t afford it. Don’t try to push them into something more than they can realistically get. For me, home is my favorite place to be so if forfeiting a vacation now and then, or not eating out as much allows me to have a nicer home that I’m spending every day of my life in, then I’m quite willing to make that sacrifice. Everyone has to know their own priorities.

    • Adam Buller says:

      Yes, they just can’t seem to help themselves can they Kathy. I’m totally happy if people want to sacrifice to live in a nicer place, just as long as they know what they’re getting themselves into.

  3. It goes without saying that you should only borrow what you think you can afford. But so many people borrow more that I guess you had to say it. Thank you for tho=is excellent post.

    • Adam Buller says:

      I think newbie buyers sometimes underestimate the cost of running your own home too Brad, especially if they have been living at home beforehand. When I first moved into my own rented flat I think I budgeted about £15 a week for food and other household products, I quickly found out how unrealistic that was. I was only young though.

  4. dojo says:

    Wonderful advice. In my country many people fell victims of their own pride, by loaning way too much. Now many are losing homes or really struggling. You shouldn’t borrow more than you’re comfortable paying back.

  5. Your last point is the key – buy what you can afford, not what the bank says you can afford. When I was looking to buy, I was blown away at how much I was approved for. There was no way I could actually afford that monthly amount. Do your homework and only take a loan out for what you can comfortably pay back.

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