The average house price for a first-time buyer in the UK is £167,664 (December 2009).

This means that the vast majority of buyers will need to borrow cash from banks and mortgage companies in order to get a foot on the property ladder.

Maximum mortgage

If you are a single person, or the only wage earner, the amount that you can borrow will normally be three to three-and-a-half times your gross salary, which is before tax and other deductions.

For example: if your salary is £24,000 per year, your maximum borrowing may be:
3 x 24,000 = £72,000.

If you are buying with a partner or friend, the amount you can jointly borrow in the region of two-and-a-half times your combined salaries before tax. It may also be worked out as three times the higher salary before tax, plus one times the lower salary before tax:

For example: with a higher salary of £18,000 and a lower salary of £10,000, your maximum borrowing will be:
2.5 x (18,000 + 10,000) = £70,000
OR 3 x 18,000 (54,000) + 1 x 10,000 = £64,000
(whichever is higher).

If you are self-employed, the amount you can borrow is based on your business accounts and will probably be calculated using your net income. You will typically need at least three years worth of audited accounts to qualify for a standard mortgage.

Affordability

Affordability is a more recent tactic that lenders use to assess how much you can borrow. It's when all your expenses are deducted from your net monthly income, such as student loans and credit card debts, as well as general living expenses. The remaining figure, which would be your mortgage payment, is then used to assess the size of mortgage you can realistically borrow.

Many experts believe this is a preferable way of assessing the size loan a first-time buyer should be granted, as it takes into account your debts as well as your income. Most lenders these days employ a combination of income multiples and affordability criteria, so the more debt you can pay off before you apply for a mortgage, the more you will be able to borrow.

The deposit

Since the financial crisis, mortgage lenders now insist on a minimum deposit of 10% of the property value. Some mortgage lenders previously offered 100% of the purchase price or valuation (whichever is lower), although these are now obsolete. A handful of 95% mortgages are still available, but they will involve parents, e.g. they have to be a guarantor or hand all their savings over the lender.

The higher lending fee

A higher lending fee is charged if you wish to borrow 75% or more of the property's valuation or purchase price, whichever is lower. This is sometimes called loan to value (LTV), or mortgage indemnity guarantee (MIG).

The fee is charged because there is a greater risk to the mortgage lender when the total amount to be borrowed is more than 75% LTV. It is payable in a lump sum and will normally be added onto your loan. The fee is not refundable if, for example, the mortgage is redeemed early.

Most lenders have stopped charging it but keep a close eye on this fee as it works out very expensive.

There are also lots of other costs to take into account, such as mortgage arrangement and valuation fees, legal costs and - of course - the price of furnishing and decorating the place once you get there.