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Mortgage lenders calculate how much they will lend based on a combination of your income, your existing financial commitments and the size of your deposit. Most lenders will offer between 4 and 4.5 times your annual income, though some will go higher for borrowers with strong credit profiles and larger deposits.
Income Multiples The most common way lenders assess mortgage affordability is by applying an income multiple to your gross annual salary. For a single applicant earning £40,000, a 4.5x multiple gives a maximum loan of £180,000. For joint applications, lenders typically apply a multiple of 3.5 to 4.5 times combined income. Some specialist lenders consider higher multiples for professionals such as doctors, solicitors and accountants.
Affordability Assessments Since 2014, lenders must carry out a detailed affordability assessment rather than simply applying an income multiple. This covers your regular outgoings, childcare costs, existing loan and credit card commitments, and how you would manage if interest rates were to rise. The assessment is designed to ensure you can afford the mortgage comfortably, not just at today's rate.
Improving Your Borrowing Potential There are several ways to increase how much you can borrow. A larger deposit reduces the loan-to-value ratio and can unlock lower rates and higher multiples. Reducing existing debt before you apply frees up more of your income. Improving your credit score by registering to vote, keeping credit utilisation low and not missing payments also makes a real difference. Speaking to a whole-of-market broker gives you access to lenders who may offer more than your high street bank.
