Income Multiples Explained
Hot Topics
- How Much Can I Afford?
- You have to be very careful when buying a house to be sure that you will be able to afford the monthly mortgage repayments – as you risk losing your home completely if you find you simply cannot afford it.
- What Is A Mortgage Indemnity Guarantee (MIG) And Will I Have To Pay It?
- The Mortgage Indemnity Guarantee is also known as a Mortgage Indemnity Premium or High Lending Fee. It protects the lender against the risk of you defaulting on your mortgage debt.
- Where Can I Buy a Mortgage?
- Many, but not all financial services companies offer mortgages. If you are looking for a mortgage the traditional approach is to speak to you bank or a building society. However, you are most likely to find the cheapest deals by speaking to a Mortgage Broker.
- The Mortgage Glossary
- APR - This stands for Annual Percentage Rate and should be used to compare the costs of credit.
- Equity Release
- Equity Release is a means of using the value of your home to receive either a lump sum of cash or regular monthly instalments.
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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