Mortgage Income Multiples

To make an online mortgage or remortgage enquiry, if you need higher income multiples click here online mortgage enquiry

Income multiples are a simple way for a mortgage lender, and you, to calculate how much can be borrowed.

For many years this was a pretty much universal 3x gross (before tax and national insurance are deducted) income. In the case of two, usually married applicants, it was 3x the higher income, plus 1x the lower income.

For example, Applicant A has a gross income of £30,000pa and applicant B has a gross income of £10,000pa.

As single applicants, A could borrow £90,000 and B could borrow £30,000

As joint applicants, they could borrow £90,000 + £10,000 = £100,000

The situation has changed greatly in the last few years, with the income multiples used increasing. 

Currently, you can obtain income multiples of over 5x a single income, or 4x joint incomes, with relative ease. Using the same incomes as above:

Applicant A can now borrow over £150,000, and applicant B over £50,000

Jointly, they can borrow over £160,000

There are a number of reasons for this shift in lending policies:

• Mortgage Interest Rates have steadily fallen, and become more stable over the last 15 years or so. If it made sense to lend 3X income when rates were 9% or higher, then it makes equal sense to lend 4 or 5x income when rates are 5%.
• The second, lower income was usually the wife's, and was possibly considered to be temporary, as leaving work to have a family was the norm.
• Lenders are more comfortable with risk, as they have built up vast experience of assessing risk.
• Cyinically, with the property as security, lenders want to acquire more borrowers, and increase profits.

Factors affecting income multiples in practice

Lenders will typically DEDUCT EXISTING FINANCIAL COMMITMENTS before appling income multiples.

So A with his gross salary of £30,000pa has a car loan costing £186pm (£2,232 pa) over 5 years, will be treated by a lender as having a salary of £30,000 minus £2,232 = £27,768. Using an income multiple of 3X his borrowing ability is reduced by £6,696 to £83,304.

Lenders policies vary, but other financial commitments such as maintainence payments and credit card payments are usually taken into account. At least one lender however IGNORES credit card payments. Other lenders have moved to affordability calculators, as an alternative to income multipliers.

I do know of one lender in the market who will lend 5x joint income. Whilst I'm not advocating that everyone stretch themselves this far, in the right circumstances, this can be useful.

To make an online mortgage or remortgage enquiry, if you need higher income multiples click here online mortgage enquiry    

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