Mortgage Income Multiples Explained

When it comes to getting a mortgage, the amount you’ll be able to borrow will depend on a few different things. Two main factors are: the mortgage deposit amount you have and how much you earn annually.

In this guide, we’ll cover the main things you need to know about mortgage deposits – how it works and how much you’re likely to need. Plus, how your annual income affects the amount you’ll be able to borrow.

Mortgage deposits

To get a mortgage, you need a cash deposit upfront. A mortgage deposit is a sum of money you pay to your mortgage lender before you move in. The larger the amount of money you can put down as your deposit, the more of the property you’ll own straight away, and the smaller your mortgage needs to be. For example, if the property you want to buy is worth £200,000, and you have £10,000 to use as a deposit, your mortgage would then be £10,000 less than £200,000 – £190,000. 

The difference between the property value and deposit amount is known as the ‘loan-to-value’ ratio. If you have a 10% deposit, your loan-to-value ratio is usually expressed as a 90% mortgage, or a 90% loan-to-value.  

You usually need a deposit amount of at least 5% of the property’s value you’re looking to buy. 

How to get a larger mortgage deposit

There’s a few options to consider if you don’t have the minimum 10% mortgage deposit amount. 

It’s best to chat through your options with a specialist mortgage advisor like our Mortgage Experts. They’ll be able to look at your unique situation and give you tailored advice, but here’s a few ideas: 

• Save. Not nearly as easy as it sounds. But if you can, consider saving up more money before applying for a mortgage if you don’t have at least a 5-10% deposit. 

• Ask for a gift. If it’s an option for you, you could consider asking your parents, close family or close friends for a gift of money to put down as a deposit. 

• Look at lower value properties or areas.  If you have an amount of money to use as a deposit, but it’s not quite enough for 10% of the property you want, you could consider looking for a lower value property. Or, you can search for a property in a cheaper area – if that’s an option for you. 

Income multiples 

Your income multiple is literally just a multiple of your income. For example, if you earn £30,000 a year, your 3x income multiple would be £90,000 and your 4x income multiple would be £120,000. 

It’s a figure mortgage lenders use to determine the size of the mortgage they could be willing to offer you. 

All mortgage lenders have their own lending criteria that determines how much they’re willing to let you borrow. For example, if a mortgage lender had a rule that they only lend people up to 4x their annual salary, then they wouldn’t be willing to lend you more money than that on your mortgage. 

Most mortgage lenders will allow you to borrow a maximum of 4.5x your annual salary. There are a few lenders that will look at 5x income or even 6x income in certain cases, but this is fairly rare. 

What if I’m applying for a joint mortgage?

If you’re applying for a joint mortgage with someone else, you can add your incomes together to increase the amount you can borrow. So if you earn £30,000 annually, and your partner earns £25,000 per year, your combined total income will be £55,000. So, the lender’s criteria and the amount you can borrow would be based on a multiple of £55,000.

Why are income multiples capped at 4.5x?

During 2020, a lot of mortgage lenders capped their income multiples because of the financial uncertainty brought on by the global Coronavirus pandemic. 

Lenders do this to protect themselves, but also borrowers. They always try to avoid a situation where a borrower might not be able to keep up with their mortgage payments. 

Very high income multiple mortgages are harder to keep up with because they’re higher value. Because the pandemic brought on such huge financial instability, lenders want to make sure they lend responsibly.