When you want to buy a property, knowing how many times your salary you can borrow for a mortgage is essential to help you gauge what is in your price range. There are many factors that can influence a lender to increase or decrease this multiple and in this post, I’ll take you through some factors to consider.
Typically lenders will let you borrow from 3.5 to 4.5 times your salary for a mortgage. Some lenders will go above this under the right circumstances, however, it will depend on a number of factors that influence their decision.
What Mortgage Can I Afford At My Salary?
Remember that the property price may be higher than this depending on the amount you put down as a deposit.
|Basic Salary||3.5x Salary||4x Salary||4.5x Salary||5x Salary|
What Salary Do I Need To Afford a Mortage at Each Price Level?
Many people have questions related to what salary do I need to afford a £150k, £300k, £400k mortgage. In the below table I’ve highlighted what salary is needed in order to be able to afford a mortgage at each salary multiple.
|Total Mortgage||3.5x Salary||4x Salary||4.5x Salary||5x Salary|
Borrowing As A Couple on a Joint Mortgage
If you have a partner you’re looking to buy a property with, the calculations and guidelines are pretty much the same as for sole applicants. Lenders will still typically allow you to borrow 3.5 to 4.5 times your joint salaries combined.
This means, when two people combine their income together it can allow them to buy a property worth substantially more compared to buying a property alone or they can buy the same property with a lot lower average income.
For example, in order to get a £250,000 mortgage at a 4 times multiple, a sole buyer would need a £62,500 salary. When two people are together, one person could have a £35,000 salary and the other person could have a £27,500 salary, and when combined together would still provide the £62,500 joint salary needed to secure the mortgage.
Loan To Value (LTV) Ratio Considerations
When assessing how much a lender will allow you to borrow, one of the main factors is the loan to value ratio. This ratio is how much deposit you’re putting down in relation to the total price of the property.
For example, if you want to buy a property worth £200,000 and have a £20,000 deposit, your loan to value ratio is 90% as you need to take a loan out worth 90% of the property which in this case is £180,000.
The lower your loan the value ratio, so the higher your deposit, the less risk the lender is taking on. This is because in the event you defaulted on the mortgage payments, they only have to sell the property for the loan to value percentage in order to recover their money.
If they had a 95% loan to value ratio, they would have to sell the property for 95% of its value to not lose money. Whereas if they had a 60% loan to value ratio, they’d only have to sell the property for 60% of its value to recover their money which is a lot easier and hence poses a lot less risk.
As the lender has a lower risk, they’re more likely to allow you to borrow more money as a multiple of your salary, and also may offer a lower interest rate, double win!
Credit Score Considerations
If you have a bad credit score or have any missed payments some lenders may see that as a red flag and limit the amount of money they’re willing to offer as a mortgage. Before you apply for a mortgage, make sure to have a look at your credit report to see if it’s in good standing and if not start to take corrective actions.
Other Expenses & Outgoings
Assessing your income is just one side of the puzzle, knowing how much money you’re left with at the end of each month after all other expenses is also a critical piece of information. The lender wants to be able to see that you can comfortably pay the estimated mortgage payments as well as your other regular expenses and commitments.
Spending all or most of your disposable income each month on other expenses and outgoing could significantly reduce the amount a lender if willing to give you.
For example, you have other sources of debt such as personal loans, credit cards, or car finance that need paying every month or consistently spend a lot of your disposable income on food, drink & clothing.
If this is the case, this post I’ve written on how to create a personal budget may be helpful to reduce your monthly spending.
Impact of Your Age
Some lenders may be wary of offering a high multiple of income to people that are coming close to retirement age as the likelihood of your salary continuing at the current level is low.
When many people retire, they only have a fraction of the same earnings they once did when they had a job. If you can prove your earnings won’t reduce or you have a great expected pension in place this could help when securing a mortgage.
Some lenders even have age caps where they will refuse to lend to people above a certain age such as 70 or 75. Some also have no age caps at all, although can be more difficult to find.
How Much Deposit Do I Need To Put Down for a 4 to 4.5 times Salary Mortgage?
Typically lenders want at least a 10% deposit in order to lend out at 4 to 4.5 times your salary as a multiple. However, the more you can put down as a deposit the more it can help increase the multiple a lender is willing to offer.
To understand why lenders are willing to lend you more money if you put down a larger deposit, make sure to read the section on loan to value (LTV) considerations in the post above.
How Many Times My Self-Employed Income Can I Borrow for a Mortgage?
Mortgage providers want to see safe and steady streams of income as they use this to predict affordability over a long time frame.
For people that are self-employed, securing a mortgage can be a lot more difficult. This is because income can be a lot more erratic with some months being great and others maybe not so much if there are gaps in jobs or other reasons.
From the lenders’ perspective, they’re wanting to reduce their level of risk so the more information you can provide showing a solid track record of earnings the better. Usually, lenders will want to see at least 3 years’ records demonstrating your earnings were at a certain level. Some will accept lower, however, the more you can provide the better.
Once you can prove a solid track record, you may still be able to borrow 3.5 to 4.5 of your annual income, however, it may be harder to find lenders that will offer the higher multiples. The more you can put down as a deposit will certainly help lower the risk for the lender which may help secure the higher multiples.
Professional Mortgages – Borrow Over 5 Times Your Salary
Professions such as Accountants, Architects, Actuaries, Barristers, Chartered Surveyors, Dentists, Medical Doctors, Optometrists, Pharmacists, Solicitors, and Veterinarians may be able to be accepted for one of these mortgages.
These products make the assumption that if you have recently qualified into a specific profession, usually within the last 5 years, your income should keep rising over the next few years. This means lenders may be willing to lend more as a multiple of salary to anticipate this wage growth.
Not all lenders offer this product, however, if you’re in this category it’s certainly worth considering if you want to maximise the amount you can borrow on your current salary.
Summary – How Many Times Your Salary For a Mortgage?
Overall, lenders typically lend out money based on 3.5 to 4.5 times your salary, although as you can see there are a number of factors that can influence their decision.
This post is only intended as guidance to help give you a general idea of mortgage salary multiples and factors that may affect it so you have an idea of the right questions to ask and where to do further research.
If you have any specific questions about your likelihood of securing a mortgage or need any help looking for one, make sure to contact a trained mortgage broker or financial advisor. They can give you advice aligned to your personal circumstance and take you through all of your options.
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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