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How Your Salary Affects Your Mortgage

MORTGAGES | 20.12.2018

When a mortgage lender is assessing your application, they’ll take a look at your salary when deciding how much they’re willing to lend. Here’s how your salary affects your mortgage.

When a mortgage lender is assessing your application, they’ll take a look at your salary when deciding how much they’re willing to lend.

It’s often said that lenders will multiply your salary by four and give you a mortgage for that amount, but their process is slightly more complex than this.

Here’s how your salary affects your mortgage.

Multiplying your salary to determine the loan amount

For many years, lenders would multiply an applicant’s annual salary by four in order to calculate how much they were willing to lend. For example, if a buyer was earning £30,000 a year, this meant they’d be able to borrow around £120,000.

However, in 2014 regulatory rules changed and mortgage lenders were forced to carry out more thorough affordability assessments in order to reduce the likelihood they’d lend money to people who could struggle to repay.

If you’re buying a property with someone else, the lender’s calculation may be based on a lower multiple. For example, if a couple have a combined income of £50,000, they may only have a maximum loan amount of three times their income.

Lenders will want to see proof of your salary and usually, they’ll want to see at least three months’ of payslips.

How self-employment affects your ability to borrow

If you’re self-employed, prospective lenders will take this into account before deciding how much to lend you.

Lenders tend to be much more selective when deciding whether to lend to self-employed applicants and usually you’ll need at least two years of accounts and tax returns in order to get your application approved.

Self-employed mortgage applicants often turn to mortgage brokers for help obtaining the loan they need. A mortgage broker will use years of expertise and insider knowledge to point you in the direction of the lenders most likely to lend you the money required for your dream home.

Other factors lenders take into consideration

Lenders will also take your deposit savings into account. If you have a larger deposit, they may be willing to lend you more because if you were to default on your mortgage, there’d be a larger sum of equity in the property.  

Lenders will also take a close look at your credit history to assess your track record when it comes to repaying debt.

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