The mortgage you get depends on your salary. In other words, salary multiples directly affect the amount you can borrow on a mortgage.
While this may sound simple, it is actually not that straightforward. It certainly was so a few years ago, but with increasing costs of property and decreasing affordability, there are several factors that come into play when determining the mortgage you can get.
It is extremely essential
in today’s era to understand how to get the highest income multiple mortgages.
First off, it is important to find a specialist to assist you, because there are no set rules; different lenders have different ideas of maximum affordability and various ways to determine this.
While some calculators may give you an idea of the mortgage multiple you are likely to acquire, there are no exact amounts until a lender individually browses your case file and the several factors that come into play.
A few years ago, it was simple to calculate these multiples; the mortgage would simple be 4 or 5 times one’s salary.
Now, policies have changed with economic downfall and higher prices, tighter lending regulations, and newer technology.
Simple mortgage multiples are in fact becoming somewhat obsolete as instead increasingly lenders rely on the Mortgage Market Review to gauge affordability.
Factors that calculate modern affordability
The newer mortgage affordability model uses mortgage calculators with several factors like income, income deductions (like pension, health, saving schemes), and potential future changes in the come. A potential borrower’s outgoings are scrutinized and analyzed at length.
These may include monthly costs, and credit commitments (like other loans, credit cards). The number of family members, children, and other financial dependants like elderly parents also come into play. These among other deciding grounds help gauge the borrower’s disposable income, which is then used to decide on the loan and interest. The mortgage itself may vary from 3x to 5x.
When analysing the possibility of acquiring a decent mortgage, it is important to consider that basic salary and net profit used to be enough to make these decisions a decade or two ago.
A major reason this is not the case now is that modern income sources are complex. Borrowers may be freelancers, self-employed, startup entrepreneur, etc.
Usually, businesses that have been running for less than 12 months don’t have good chances, though proof of constant growth at a decent rate may mean otherwise.
Other factors that might add to better chances of getting a high multiple are income sources other than salary: allowances, bonuses, commissions, and royalties are incomes that are not fixed and can contribute positively to one’s case if they are consistent and usually increasing on the employment record.
If you have a complex income source, make sure to use a mortgage specialist to get the maximum multiple.
While there are several factors that negatively affect one’s case, too, the good news is that some common and somewhat major expenses – like phones, loans with less than 6 months left to completion, and renting out mortgaged properties – are things that don’t normally count as primary outgoings.
While everyone wants to get the best mortgage multiple, it is absolutely essential to consult an expert so as to know the best way to proceed with your case, and to know what to expect in the process.
Some general tips one can incorporate in the process is to maintain a good credit history, a file that does not show later payments, and no IVAs. Understandably, mortgage income multiples are lowest for those who have adverse credit on their file.
Even in the most complex situations, however, a specialist broker may be able to get you more than you’d imagine!