Income Multiples Explained
Hot Topics
- Do I Need a Guarantor?
- If your lender is concerned about your ability to meet your mortgage commitments, they may ask you to provide a Guarantor.
- What Happens If Interest Rates Change?
- If you have some form of fixed interest rate mortgage you will be unaffected by changes in interest rates. Otherwise you can expect a change in the rate of interest charged on your mortgage.
- What Happens If We Have A Joint Mortgage, But One Of Us Wants To Leave?
- This area of the law is an extremely complex one – and it all depends on who is the legal owner of the property. You can read about this matter further on https://england.shelter.org.uk/advice/advice-469.cfm
- Information For 1st Time Mortgage Buyers
- Your first mortgage will be the most significant financial undertaking of your life so far, but how exactly do you go about getting a mortgage?
- What Are Flexible Mortgages?
- Generally, people rebroke their mortgage deal once every five or six years. They also may change their mortgage lender at the end of a discounted or fixed period. Chances are in that in the time between their last remortgage, the mortgage market will have changed a great deal.
If you are an employee, the majority of mortgage lenders will calculate the maximum size of a mortgage loan based on your salary.
Traditionally, for single applicants, most lenders have been prepared to offer an amount up to three times salary. In the case of joint applicants, the offer has been either:
Up to three times the larger salary, plus one times the other salary, or
Up to two and a half times the combined salaries.
For example, if Mr Smith earns £40,000 per annum and his wife earns £20,000 then they could expect to borrow either:
3 x £40,000 + £20,000 = £140,000, or
2.5 x £60,000 = £150,000
The definition of salary is usually your full basic salary plus 100% of guaranteed bonuses or 50% of regular bonuses/over time. Before applying the multiples shown above the lender will deduct from your salary the annual payments to any existing loans, but if a loan finishes within the next year it will normally be ignored.
Nowadays, higher multiples are available from some lenders. loans of up to four times salary are not uncommon, and some will even go as high as five times salary for certain occupations.
Whatever maximum amount you are offered, it is very important to make sure you can afford the mortgage repayments. You need to consider the situation as it is now, and also what would happen in the future if interest rates were to increase.
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