Question

Emma and Max want to buy a house together.

Emma earns £18,500 and Max earns £22,500. They have £6000 savings.

They want to buy a house that is being sold for £130,000.

They will pay the deposit with their savings and take out a mortgage to pay for the rest.

Emma and Max can borrow 3 times their combined incomes as a mortgage.

They will need to pay 5% of the selling price of the value as a deposit.

How much can they borrow as a mortgage?

Answer 1

£123,000

Explanation:

Their combined income is ...

£18,500 +22,500 = £41,000

They can borrow 3 times this amount, or ...

3 × £41,000 = £123,000

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Comment on this transaction

The required deposit is 5% of 130,000 = 6,500, which is more than their savings. After this down payment is made, the remaining value is £123,500, which exceeds their borrowing power. It appears that Emma and Max need to find a house with a lower price.