How Does My Salary Affect My Mortgage Amount?

1st June 2017

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Mortgage lenders will look at your salary when they’re deciding how much they’re willing to lend you. However, they won’t just multiply your salary to calculate your maximum mortgage amount - they’ll also make affordability checks, taking into account your spending patterns as well as your income.

How much can I borrow?

Income calculations

In the past, mortgage lenders generally multiplied your annual salary to calculate how much they were willing to lend to you. The maximum amount was usually four or five times your annual salary. If you were earning £30,000 a year, for example, you may have been able to borrow around £120,000 to £150,000.

Since regulatory rules changed in 2014, mortgage lenders have had to conduct affordability assessments, taking into account spending as well as salary. They’re also required to check that you’ll be able to make your mortgage payments if your financial situation changed, or if interest rates increased.

Multiplying your salary may still be used to calculate a maximum mortgage amount, but you might be offered less than this once you’ve had your initial affordability assessments. The maximum amount is typically around four times your annual salary.

If you’re applying for a mortgage based on two people’s salaries, the calculation may be based on a lower multiple. You may find you’re offered a maximum of three times your joint income, for example. So while one person earning £50,000 a year may be able to borrow a maximum of £200,000, a couple earning £30,000 and £20,000 may be able to borrow a maximum of £150,000. However, this is a very rough guide - each lender has different criteria and makes different calculations.

Bear in mind that your lender will ask for proof of your salary, so you’ll need to provide payslips and other documents. If you’re self-employed, you’ll usually need to show your company accounts or tax returns.

Affordability calculations

When you’re applying for a mortgage, the lender will need to understand your income and outgoings. They’ll want to know whether your salary is consistent, and whether you have any additional income (from bonuses or overtime, for example).

They’ll also look at your spending habits, financial commitments and lifestyle, and they may ask about your dependents and your retirement plans. They’ll be interested in all your significant outgoings, such as loan repayments, utility bills, council tax, insurance, car running costs, pension contributions, and childcare.

You’ll usually be asked to provide documents to support these figures, such as bank statements and utility bills. The lender is trying to calculate whether you can afford the monthly mortgage repayments given your other financial commitments, and whether you’d still be able to afford them if your situation changed or your interest rate went up.

Remember that lenders are finding out more about your situation so that they can make a responsible lending decision. They’re competing for your business, so don’t get put off by the many questions!

Other factors that affect your mortgage amount

Although salary and affordability calculations affect how much you can borrow, there are other factors that lenders will take into account when they’re deciding how much to lend you. This includes the size of your deposit relative to the property value, and your credit score.

See what you could afford to borrow

To quickly get an idea of what you could afford to borrow based on your deposit and your annual salary, try our mortgage affordability calculator. Once you’ve entered your income and savings, the calculator will give you an indication of how much you could afford to spend on a new home, taking into account stamp duty and legal fees.

For a more accurate figure, fill in a few details about your income and outgoings. We’ll crunch the numbers and can provide you with a downloadable Mortgage in Principle in just five minutes.

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