Understanding your home-buying power as a first time buyer
‘Buying power’ is one of those terms you’ll often hear as a first time buyer, but what does it actually mean, and why does it matter? Understanding your buying power can help you set realistic expectations, hone your search and approach the home-buying process with confidence.
If you’re keen to learn the lingo and feel more confident navigating the process, you’re in the right place.
What is buying power?
When it comes to property, your buying power is your ability to buy a home based on financial factors like income, expenses and savings. Mortgage lenders use these factors to calculate how much they’ll lend you. Essentially, it’s your home-buying budget.
Why does my buying power matter?
Your buying power affects what you can afford, including your price range and the type, size and location of properties you can realistically consider. The higher your buying power, the more options you have.
Financial factors that influence your home-buying power
These are the main factors lenders consider when calculating your buying power:
Income: Mortgage lenders look for steady, reliable income as it shows you can repay the loan. They usually offer a loan that’s 4-4.5 times your annual salary, so the more you earn, the more you could borrow, in turn boosting your buying power.
Savings: A larger deposit increases your buying power and may give you access to better mortgage rates.
Credit score: Your credit score shows lenders how reliable you are at repaying loans. A higher score can make it easier to borrow and may improve your mortgage options.
Debt: Existing loans, from credit cards and buy now, pay later schemes to your student loan, impact your debt-to-income ratio. The lower the ratio, the higher your buying power.
Expenses: Your monthly outgoings (those fixed costs like bills, rent and travel expenses) affect the amount of disposable income you have. More disposable income usually indicates greater stability, increasing your buying power.
How do I calculate my buying power?
There are various ways to calculate your buying power, from affordability calculators that will give you a rough idea to getting a mortgage in principle (MIP), which details how much a lender may be willing to lend you for a mortgage.
Affordability calculators
We offer two free affordability calculators – one for general mortgage affordability and one for Shared Ownership affordability – to help you understand how much you could potentially borrow.
Speak to a mortgage broker
Our mortgage broker panel is made up of specialist financial experts who understand the nuances of buying schemes like Shared Ownership. They can give you expert advice on your financial circumstances, including tips on how to boost your buying power. They also have access to the full mortgage market, so they can help you find the best loan for your needs.
Get a mortgage in principle
A mortgage in principle – also known as an agreement in principle (AIP) or a decision in principle (DIP) – is an official written confirmation from a lender that provides an estimate of how much they’re willing to lend you. Having an MIP can be beneficial when viewing properties, as it shows you’re highly likely to be approved for a mortgage. Obtaining a MIP adds a ‘soft’ search to your credit file, so it doesn’t affect your credit score.
How to increase your buying power
Saving more: Having a larger deposit can boost your overall budget, increase your buying power and enhance your home-buying options. If you want to boost your savings to buy a home, a Lifetime ISA could be the ideal savings account for you. It allows you to save up to £4,000 per tax year, with the government giving you a 25% bonus on your savings, up to £1,000 every year.
Boost your income: While a higher salary may be the ideal situation, negotiating an increase to your annual income isn’t always a viable option. Alternatively, you could explore additional or passive income streams to supplement your salary.
Manage credit: Using credit responsibly, reducing debts and paying bills on time can improve your credit score, which lenders use as a signal of financial responsibility.
Support for first time buyers
The good news is you don’t necessarily need to have a high level of buying power to purchase a home. In fact, there are various first time buyer schemes available to help you along the way. From government-backed schemes, like Shared Ownership and London Living Rent, to developer-led initiatives like Deposit Unlock, they’re designed to make buying a home more affordable.
Taking the next step
Ultimately, your buying power influences the home you can afford, from the neighbourhood to the number of bedrooms. Managing your money responsibly strengthens your financial position and better prepares you to step into homeownership with confidence.
No matter where you are in the process, whether that’s improving your credit score or securing a mortgage in principle, support is available. Our free tools and resources can help you get started, and our specialist panel of financial and legal experts are on hand to provide tailored advice. When you’re ready to start your search, use our property portal to find your space.
