The amount of money you can borrow for a mortgage depends on many factors.
Conventional mortgages lend a certain amount compared to your income. For example, the traditional mortgage multiple has been 3 times income. However, in recent years lower long term interest rates have meant that banks have been willing to lend up to 4 or 4.5 times income.
Combined Income Multiples.
If you are married or live with a partner then banks will usually lend depending on a combined income multiple. For example, it may be 3 times one income + 2 times second income. Alternatively, they may lend 2.5 times the combined income
Increasingly banks look at the affordability issue when deciding how much to lend. For example, they will look at factors such as:
- Number of children
- Regular outgoing expenses
- Other loans and repayments required on these
This can often be better for single people who have limited outgoing expenses. However, income still remains an important factor.
Some banks may be willing to lend against expected future income increases. For example, graduate mortgages can lend upto 5 times current income on the basis that their salary is likely to increase in the future.
If you can save a deposit upto 25% of your house value mortgage lenders should be willing to lend more freely. This is particularly true for self certification mortgages. Self certification mortgages are when you don’t have to prove income.
Income Multiple 3* income Multiple 4* income Multiple 5* income £20,000 £60,000 £80,000 £100,000 £25,000 £75,000 £100,000
£30,000 £90,000 £120,000 £150,000 £35,000 £105,000 £140,000 £175,000 £40,000 £120,000 £160,000 £200,000 £50,000 £150,000 £200,000 £250,000 £60,000 £180,000 £240,000 £300,000 £70,000 £210,000 £280,000 £350,000 £80,000 £240,000 £320,000 £400,000
It is a sobering thought that to get a mortgage for the average house price in the UK £200,000 would require an annual income of just under £70,000. No wonder first time buyers struggle to get on the property ladder.
Note: Be wary of borrowing more than you can manage. For example, with self certification mortgages it is possible to exaggerate your current income to get a mortgage. However, if interest rates rise then you can experience great financial hardship.