Depending on your individual circumstances, many UK lenders are happy to offer 3x salary mortgages. What does that mean for you? This guide will explain 3x salary mortgage requirements and other factors that may impact how much you’ll be able to borrow.
What is meant by a 3x salary mortgage?An ‘income multiplier’ is the figure mortgage providers will multiply your annual income by when determining the size of the loan they are prepared to offer you.
For example, if you earn £32,000 a year and a lender offers you a 3x salary mortgage, the maximum you would be able to borrow is £96,000. If a different lender offers you a 4.5x salary mortgage, you could borrow up to £144,000.
How much can I borrow with a 3x salary mortgage?If you’re offered a 3x salary mortgage, how much you’re eligible to borrow will be completely dependent on how much you earn.
The following table illustrates how the loan size will vary based on income, and the difference between income multiples of 3 and 4.5 as examples:
|Annual income||3x salary mortgage size||4.5x salary mortgage|
The difference in mortgage size between income multiples is considerable, so if you’re after a larger mortgage relative to salary size you’re best off speaking to a broker who can identify lenders that are willing to offer you higher income multiples.
Will I be able to get a mortgage three times my salary?It’s certainly possible to secure a 3x salary mortgage, and in most cases, an income multiple of three is at the lower end of the scale - meaning many lenders are willing to offer more to the right applicant.
The majority of UK lenders offer eligible borrowers mortgages based on 3 - 4.5x times their annual earnings, but some will consider 4.5 - 5.5x, and a handful may even extend to 6 or more - providing you meet additional lending criteria.
As well as your income, lenders will take into account your monthly outgoings, and a number of factors such as loan to value (LTV), source of deposit, credit history, age and job type, to establish what level of risk you pose.
If any red flags are raised, you may be more limited to which lenders will accept you, and therefore how competitive the rates you’re offered are. That being said, every lender works to different eligibility criteria and perceives risk differently - which is where the assistance of a broker can come in useful.
How does the 3x income multiple work if I want a joint mortgage?If you’re applying for a joint mortgage, most lenders are happy to take your combined income into consideration when calculating your affordability. This usually means you’re able to borrow considerably more than you would have been able to as a single applicant.
Imagine person 1 earns £20,000 a year and person 2 takes home £18,000. As a single applicant, the maximum amount person 1 could borrow for a 3x salary mortgage is £60,000. With the addition of applicant 2, the combined mortgage size increases to £114,000.
How much deposit do I need for a 3 times income mortgage?While 3x salary mortgages are pretty commonplace, it’s very rare for lenders to offer loans that cover the full cost of the property. How much you put down as a deposit in relation to the mortgage size is referred to as the ‘loan to value’ (LTV).
If you’re a residential buyer, an LTV of 90% (10% deposit) is usually sufficient - though there are a number of 95% LTV first-time buyer incentives available. Many lenders are happy to offer 95 / 90 LTV mortgages, but generally speaking the higher your deposit the more lenders you’ll have access to and the less interest you’ll pay.
For high LTV mortgages, you typically need a clean credit record and good affordability. If there are factors working against your favour, some lenders may request a higher deposit to mitigate the perceived risk.
Can I get a 3x salary mortgage with credit issues?As mentioned, all mortgage providers work to different eligibility criteria. Some lenders may refuse to lend to applicants with any credit issues, whereas others may reject those with severe forms, such as bankruptcies or repossessions.
Often though, lenders will assess the bigger picture before coming to a decision, such as how long ago the credit issue occurred, the severity of the instances, and other factors that affect your application.
Ultimately the lender will be looking for reassurance that you are going to repay your loan on time and in full, so if you have good affordability, high deposit, or in this case a low-income multiple, they may be more willing to overlook certain types of bad credit.
If you do have a history of adverse, make sure to discuss your situation with a broker before submitting any mortgage applications - a rejection can further negatively impact your credit score, which is something you’ll want to avoid.
Can I get a mortgage 3 times my income if I’m retired?Many mortgage providers have lending age caps in place. This is usually either: the maximum age in which you take out a new mortgage (typically ranging from 70 - 85), and your age when the mortgage term ends (around 75 - 95).
This is because older borrowers pose a greater risk to lenders. Once you retire you no longer have a regular salary and your income may go down, and older people are more likely to suffer with poor health.
While options are more limited and you may face term length restrictions after you hit a certain age, providing you can afford the repayments and meet the remaining eligibility criteria, there are still providers offering competitive rates for 3x salary mortgage - with no capped age.
It may be the case that after a discussion with a mortgage broker, you opt for alternative retirement mortgage products like retirement interest-only mortgages or equity release but that will really depend on your unique circumstances and the lenders that are available to you.
Can self-employed borrowers use a 3x income multiple?Self-employed individuals are often under the impression that it’s more difficult to get a mortgage, but providing you have a minimum of two years’ worth of accounts and you meet other lender criteria, there’s no reason you shouldn’t be offered a 3x salary mortgage.
If you’ve been trading for under two years and/or your income often fluctuates heavily, it’s advisable to speak to an expert who will take the time to understand your situation and can point you in the direction of lenders specialising in self-employed mortgages.
Are income multiples the only way to determine mortgage affordability?While income multiples offer a good benchmark for mortgage providers to work from, more and more lenders are moving away from this method of calculating maximum borrowing. Instead, they apply a set of rules to establish applicants' affordability.
This is determined by calculating your debt-to-income (DTI) ratio, which assesses your income against your outgoings. The lower your DTI the better, as it demonstrates to lenders that you have more disposable income available. As a guideline, most lenders prefer a DTI to be 43% or below.
Consider the following scenario: two applicants apply for a 3x salary mortgage. Both earn the same amount, but applicant 2 has far higher outgoings than applicant 1:
|Applicant 1||Applicant 2|
So while income is a factor, your overall affordability plays a far more important role in determining your eligibility for a 3x salary mortgage.
Speak to a broker to discuss your optionsIf you’ve got your eye on your dream property and estimate you’ll need a mortgage of approximately 3 times your salary, the good news is there is an abundance of lenders readily offering this product - provided you meet the additional criteria.
The best way to secure the most competitive deal is to speak to a broker. Our team of experts have extensive knowledge of the mortgage market and will strive to match you with the most suitable lender and cheapest rates.
Call us on 02380 980304 or submit an online enquiry to get the ball rolling.