Over the last two decades, the real estate industry has seen soaring property prices. Today, it is more difficult than ever to get a high-income multiple of a mortgage.
Unlike the past, where it was simple to get a 5x multiple, it is now difficult to get a multiple that high.
While a 5 is not impossible, the
multiples now vary in different situations, especially with different ways to
calculate income and outgoings, which eventually help create predictability as
to whether a potential borrower will be able to afford a mortgage in the next 5
Let us look at some of the most major sources that directly impact how many times the salary for a mortgage you are likely to get.
Type of income source
For different types of income sources, there are now different ways to determine a mortgage and its interest rate.
For someone working a 9-5 or similar job, for example, income is calculated by not only considering the basic salary but also overtime, bonuses, commissions, stipends, etc.
In case of sole traders or partnerships, the ideal situation is where the business has been stable and growing for at least 3 years – which can easily guarantee a 5x mortgage multiple.
As for Ltd companies, their performance over the last 2-3 years is observed, and income estimation takes into account salary, dividends, taxes, etc. The good news is that for all types,
No one is oblivious of the cost of raising a child in this decade.
This naturally means that children are considered a major expense and constitute a large part of outgoings when you apply for a mortgage. Lenders will usually scrutinize the average cost of children’s education in the area, as well as other expenses like holidays, recreational activities, etc.
Other than offspring, financial dependents like an unemployed
spouse, an older child who hasn’t moved out, elderly parents, or other
financially dependent relatives are also taken into account.
Any credit commitments reduce the amount one can borrow. Lenders specifically consider other loans and mortgages that have over 6 months left in completion, as well rented property and the potential increase it can pose in the future.
As for credit cards, different lenders treat them differently, with some deducting 2.5% of the balance while others going as high as 5%.
Certain independent financial factors relating to the mortgage itself can also have a major impact. For example, the larger the mortgage deposit, the lesser the risk for the lender.
A large deposit means a smaller amount has to be paid off over the years, which naturally makes the lender more secure. The time period decided for the life of the loan is also essential.
Most mortgages are given on a repayment basis, which means that the balance is reduced with monthly payments. If a loan repayment period is too short, a lender might feel it is riskier since it obviously poses an additional risk to the borrower. Appropriate lengthy mortgages might seem like lesser risks.
Other than this, previous mortgages and credit history an also have an impact.
To get the highest times salary for a mortgage, it is essential that you do not have a low credit score, late payments, defaults, debt management, IVAs, CCJs, bankruptcy, or other similar past circumstances on your file. In such cases, not only can the income multiple be low, but a mortgage might also be outright denied.
Since getting a mortgage loan has become so complex today, it is essential to seek the help of an expert broker. These specialists can especially help with complex income sources, major outgoing commitments, or a poor credit history.