Income Multiples Explained
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- Types of Mortgage:
- Variable rates Mortgages: - mortgage payments are calculated by your lender on the so-called "Standard Variable Rate". This is based on the monetary "base rate" that is reviewed monthly by the Bank of England.
- Income Multiples Explained
- If you are an employee, the majority of mortgage lenders will calculate the maximum size of a mortgage loan based on your salary.
- 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 I Can’t Keep Up My Repayments?
- It is very important that if you are having problems meeting your mortgage repayments, you talk to your mortgage lender straight away.
- What are Self Certification Mortgages?
- When you apply for a mortgage, the lender will require from you proof that you will be able to maintain the mortgage payments, and do not present a risk of non-payment for the large amount of money you are borrowing.
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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