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How many times my wages can I borrow for a mortgage?

What income multiples do lenders use to calculate the maximum amount for a mortgage

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 5th April 2019* | Published: 6th February 2019

We receive a huge amount of enquiries along the lines of “how many times your salary can you borrow for a mortgage?” The ‘mortgage x salary’ equation varies from lender to lender as they all work within the boundaries of their own affordability criteria. So, the good news is if you haven’t been able to reach your borrowing target with one lender, one of the expert advisors we work are whole of market and may be able to help, even if you have bad credit.

Once you’ve read through the details in this article it’s crucial you make an enquiry with us and we can arrange for a specialist to contact you directly.

In this article we’ll look at:

  • How do I work out how many times my salary I can borrow for a mortgage?
  • Can I include any additional income I may earn to work out how much
  • I can borrow for a mortgage or just my basic salary?
  • As a couple, how many times our joint salary can we borrow for a mortgage?
  • How many times my self-employed earnings can I borrow for a mortgage?
  • What other factors may impact the amount I can borrow for a mortgage?
  • Speak to a mortgage expert

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How do I work out how many times my salary I can borrow for a mortgage?

All lenders use a multiple of your income as a basis for establishing the maximum amount you can borrow. Every lender works within the parameters of its own guidelines, therefore, some can be more generous than others. Most lenders will use an income multiple of 4 times your salary, some will use 5 times salary and a few will use 6 times salary, under the right circumstances.

You’re unlikely to find a mortgage provider willing to lend x7 your salary or more in the UK, or as low as x2 your salary.

The specific ‘times salary’ equation you can use to establish the maximum you can borrow for a mortgage will, as mentioned above, vary from lender to lender. However, the table below provides some guidance as to how this may look:

Basic Salary 4 x salary 4.5 x salary 5 x salary 5.5 x salary 6 x salary
£25,000 £100,000 £112,500 £125,000 £137,500 £150,000
£30,000 £120,000 £135,000 £150,000 £165,000 £180,000
£40,000 £160,000 £180,000 £200,000 £220,000 £240,000
£45,000 £180,000 £202,500 £225,000 £247,500 £270,000

The above figures illustrate the difference it can make to find a lender who is more generous with its income multiple criteria than others. For somebody with a basic salary of £25,000 there’s a £50,000 difference between a lender using four times your salary and one using six times your salary to work out how much you can borrow.

Do lenders use the same affordability guidelines for secured loans as they do for mortgages?

Lenders tend to take a more relaxed view for the purpose of secured loans. By their very nature, a lender has the benefit of an asset as collateral for a secured loan, therefore, can afford to be much more generous when assessing the maximum amount somebody can borrow. Some lenders may be prepared to lend up to 10x income for secured loans.

Rather than trying to find out what each and every lender’s income multiple criteria is why not let us help? If you get in touch we can arrange for a specialist in this area to speak with you.

Can I include any additional income I may earn to work out how much I can borrow for a mortgage or just my basic salary?

In addition to a basic wage, many employees have the opportunity to earn additional income such as bonuses, overtime and commission. You can also receive financial allowances for items such as a car, a house, or for relocation purposes.

Can I include any bonuses, overtime pay or commission as part of my total earnings?

Yes, this may be possible. However, unlike your basic salary not all lenders will necessarily accept the total amount of these additional forms of income. For earnings such as regular bonuses, overtime and commission payments most lenders will accept 50%, some will accept 75% and a few will accept 100%. Documentary evidence is usually required in order to clarify the amounts used and a whole-of-market broker can help you find the mortgage provider who takes the most flexible approach to your income type.

Can I include any allowances I receive as part of my total earnings?

Yes,there are providers who will be fine with this. If you receive financial allowances as part of your employment contract then most lenders will include these amounts as part of your total earnings used to establish how much you can borrow for a mortgage. A lender will likely want to see a copy of your employment contract to clarify the amounts.

How will additional income affect how much mortgage I can borrow?

Basic Salary Regular Annual Bonus* Annual Overtime Pay* Annual Commission* Yearly Housing Allowance 4 x total earnings 4 x basic salary
£20,000 £20,000 £0 £0 £10,000 £160,000 £80,000
£30,000 £0 £10,000 £0 £10,000 £180,000 £120,000
£35,000 £0 £0 £40,000 £0 £300,000 £105,000

* = Bonus/Overtime/Commission capped at 50%

The table above illustrates how much of an impact different types of additional income can make to how much you can borrow for a mortgage.  In the first example, the additional income results in a 100% increase in the amount you could borrow.

There’s lots of other types of additional income you may be able to include - some lenders even treat things like benefits as declarable income . If you get in touch with us we can introduce you to an advisor we work with to discuss your own personal circumstances.

As a couple, how many times our joint salary can we borrow for a mortgage?

If you’re looking to apply for a mortgage on a joint basis, either as a couple or with business partners, then the guidelines are pretty much the same as for sole applicants. You can include the total amount of both incomes.

As two incomes are typically larger than one then a joint income application should result in a higher maximum amount you can borrow for a mortgage. Where there are more than two applicants, most lenders will use the two highest incomes for the purpose of establishing the maximum amount you can borrow, although a few will consider up to 4 applicants’ income.

Salary A Salary B Total joint salaries 4 x joint salaries 5 x joint salaries 6 x joint salaries
£20,000 £24,000 £44,000 £176,000 £220,000 £264,000
£22,000 £31,000 £53,000 £212,000 £265,000 £318,000

The above table illustrates how it is much more beneficial it can be to include both of your incomes to increase the maximum amount you can borrow. Just using one of these incomes would result in a much lower mortgage.

If you’re thinking of applying for a joint mortgage then make an enquiry with us and we will ask an advisor to discuss this further with you.

How many times my self-employed earnings can I borrow for a mortgage?

As outlined above, employees can work out how much they can borrow for a mortgage based on their basic salary plus any additional types of income that are included within the contract.

If you’re self-employed, the earnings from your business are used to work out how much you can borrow. Most lenders will also want to see a trading track record of at least 3 years, some will accept 2 years, a few will accept only 12 months, and a handful can even consider less than 12 months in the right circumstances.

Sole traders and partnerships

For sole traders or partnerships lenders will use the net profit drawn from the business. So, if the net profit averaged over the last 3 years equates to £25,000 then that is the income figure used to assess how much you can borrow for a mortgage.

Limited company directors

If you’re a director of your own limited company most lenders will take account of both salary drawn and any dividends paid. For contractors; lenders will look at your daily rate, multiply this by five days a week and then use a number of working weeks (say, 47 to account for any holidays) to assess your annual earnings.

So, for example if your daily rate was £150 per day over a 47 week trading year the equation would be: £150 x 5 x 47 = £35,250 annual earnings used to assess how much you can borrow for a mortgage.

If you’re self-employed and want to find out more about how much you can borrow for a mortgage get in touch and we can arrange for a specialist to speak to you directly.

What other factors may impact the amount I can borrow for a mortgage?

There’s no doubt that your income is one of the key factors that will influence the amount you can borrow for a mortgage. However, there are a number of other  variables that could also give a lender cause for concern, such as...

Outgoings

Assessing your income level is just one consideration a lender takes into account as part of their affordability criteria. They will also take an in-depth look at your outgoings (utility bills, dependent children, loans) to gain a full understanding of your current, and future, disposable income position. The outcome of this assessment may influence how much you can borrow for your mortgage.

Size of your deposit

Low deposits will result in fewer lenders giving an application due consideration. Those who do may restrict the amount you can borrow to negate this risk. Most lenders will accept deposits of 20%, some will accept 10% and a select few will accept as little as 5%for a residential property. Buy to lets usually  have higher deposit requirements - the lowest you’re likely to find in the UK is 15%.

Age

Mature applicants may find that a lender will curb the maximum amount for a mortgage, due to their age, to the extent that the property purchase no longer becomes feasible . However most lenders will consider applications with a maximum age of 75 at the end of the term, some have a maximum age of 85 and a few have no maximum at all, and will lend to a pensioner of any age as long as they’re confident the borrower can keep up with the mortgage payments.

Applicants over the age of 55 can also consider the option of equity release on an existing property as an alternative. If you’re approaching retirement and wish to speak with someone about a mortgage we can arrange for a specialist to talk with you.

Poor credit history

A poor credit history can cause problems with a mortgage application depending on the type of issue you’ve had and when it was registered.

The good news is there are some lenders who will look at applications from borrowers who have had credit issues in the past and a few who specialise in these types of applications.

Certain specialist lenders will consider:

  • Mortgages with Late payments
  • Mortgages with Defaults
  • Mortgages with CCJs
  • Mortgages with Mortgage arrears
  • Mortgages with Debt management plans
  • Mortgages with IVAs
  • Mortgages with Bankruptcy
  • Mortgages with Repossession

Speak to a mortgage affordability specialist

If you are ready to establish the right mortgage for you, have a question or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 5th April 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.