Income Multiples Explained

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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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