What to Know Before Applying for a £250,000 Mortgage


author image-sarah
By Sarah Watts
Updated on Monday 12 April 2021

A key on a keyboard with house icon on it

The Office of National Statistics reported that the average house price in the UK peaked at £250,000 at the end of last year and this is the very reason we’ve written this helpful article about what you need to know before applying for a 250k mortgage.

In this article:

How much do I need to earn to get a mortgage of £250,000?

What is the monthly payment on a 250000 mortgage?

What percentage of your monthly income should your mortgage payment be UK?

How much deposit do I need for a mortgage?

Do I need a good credit score for mortgage?

How much do I need to earn to get a mortgage of £250,000?

For a £250,000 mortgage, the majority of mortgage lenders would like you to earn one third of that amount, so approximately £84,000 per annum (or combined salaries of £84k for a joint mortgage), to completely reassure a lender you can afford £250,000 mortgage repayments.

However, multiplying your salary by three is only a vague guide and you do not necessarily need to earn £84k to get a mortgage on a £250,000 house with all mortgage lenders.

Many lenders will consider letting you borrow up to 4.5 times your income (or joint income). This would mean a joint or single salary required on a £250,000 loan would be approximately £55,500.

What is the average monthly payment on a £250,000 mortgage?

The average monthly mortgage payment for a mortgage on £250k will depend on the mortgage rate at the time you take it out and the mortgage term (the number of years you will have to pay back the amount borrowed).

Assuming an average interest rate of 3%, below are examples of monthly mortgage repayments according to varying terms of between 20 years to 30 years.

Average monthly payments on a £250,000 mortgage

20 years

25 years

30 years

£1,386.49

£1,185.53

£1,054.01

Source

To easily find out the average monthly payment on different mortgage loan amounts, terms and interest rates, on interest only or repayment mortgages, we recommend using Martin Lewis’s online mortgage calculator.

What percentage of your monthly income should your mortgage payment be in the UK?

Most UK mortgage experts recommend using between 30 to 40 per cent (so 35%) of your monthly income as a guide for calculating an affordable mortgage payment.

How much deposit do I need for a mortgage?

Thanks to the government’s mortgage guarantee scheme announced in this month’s budget and due to launch next month (April 2021), many mortgage lenders should accept as little as a 5% deposit.

5% of £250,000 is £12,500 so this is the amount you are likely going to need to have saved for a deposit on a £250k mortgage in 2021.

Do I need a good credit score for a mortgage?

According to Checkmyfile, although helpful, a good credit score alone does not guarantee a mortgage offer will be forthcoming and there are many different factors a lender will look at before deciding your eligibility for a mortgage loan.

Whilst a poor credit score isn’t ideal, there are equally important criteria a lender will look at on your credit report in addition to your credit rating to assess your mortgage application, including:

  • If you’re registered on the Electoral Roll

  • Your credit agreement management history

  • If you have a County Court Judgments (CCJs), a Bankruptcy or IVA

  • Hard credit checks shown on your credit files

  • Any detrimental financial associations

  • Your income and outgoings

  • Your loan to value ratio

Applying for huge loans like a mortgage will result in hard checks being recorded on your credit file and these hard checks will be visible to other lenders.

If you have a succession of hard checks recorded on your file(s), they can not only damage your credit score but also your overall creditworthiness.

It’s therefore important you check your credit score and history (report) before applying for a mortgage. There are four main credit reference agencies in the UK, namely Equifax, Experian, TransUnion and Crediva. Different lenders use different credit reference agencies so you should check your credit file with all four agencies. To obtain a free multi agency credit report, you can use checkmyfile.com which is free to use for 30 days.

Related guides


Latest News