How lenders decide
A lender asks two questions before offering you a mortgage:
- How much will we lend against this income? This is the income multiple, usually 4 to 4.5 times your yearly income before tax.
- Can you afford the payments? Lenders must check you can afford the mortgage, now and if rates rise. They look at your take-home pay, your regular bills and your debts.
The amount you are offered is the lower of the two. A high earner with large debts can be limited by affordability; someone with no debts and low living costs is usually limited by the multiple.
Income multiples
The income multiple is the simplest guide to what you might borrow. Most lenders cap lending at 4.5 times income for most borrowers. Some offer 5 or 5.5 times to higher earners or certain professions.
| Household income | 4× | 4.5× | 5× | 5.5× |
|---|---|---|---|---|
| £30,000 | £120,000 | £135,000 | £150,000 | £165,000 |
| £40,000 | £160,000 | £180,000 | £200,000 | £220,000 |
| £50,000 | £200,000 | £225,000 | £250,000 | £275,000 |
| £60,000 | £240,000 | £270,000 | £300,000 | £330,000 |
| £80,000 | £320,000 | £360,000 | £400,000 | £440,000 |
| £100,000 | £400,000 | £450,000 | £500,000 | £550,000 |
The Bank of England limits how much of their lending banks can do at 4.5 times income or more. That is why higher multiples are rationed and usually reserved for higher incomes, larger deposits or specialist schemes.
What counts as income
- Basic salary counts in full. Guaranteed allowances, such as London weighting, usually do too.
- Bonus, overtime and commission are often counted at 50%, sometimes more if they are regular and proven over two years. The calculator counts half.
- Self-employed income is usually your average profit over the last two years, or the latest year if lower.
- Other income, such as some benefits, maintenance, pensions and rental income, may count depending on the lender.
- Basic salary£45,000
- Half of the bonus£5,000
- Assessed income£50,000
- At 4.5 times£225,000
Debts and childcare
Regular commitments reduce what you can borrow, because they compete with the mortgage for your income. Lenders look at personal loans, car finance, credit card balances, student loan repayments, childcare and some other regular costs.
A simple rule of thumb, used by the calculator, is to take a year of commitments off your income before applying the multiple. At 4.5 times, every £100 a month of commitments cuts the loan by about £5,400.
Those figures are for a £45,000 income at 4.5 times. Paying off a car loan or clearing a credit card before you apply can raise your limit, as can waiting until a loan ends.
Stress tests
Lenders check that you could still afford the mortgage if interest rates rose. Each lender sets its own test, often a few percentage points above the rate you are taking, especially on shorter fixes. The calculator lets you choose how many points to add, with 3 points as the default.
- Payment at 4.5%£1,126
- Payment at 7.5%After a 3-point rise£1,496
A longer fix, such as five years or more, often has a gentler test because the rate cannot change for longer. That can let you borrow a little more.
Monthly payments
What a repayment mortgage costs each month for every £100,000 you borrow over 25 years:
| Rate | Monthly payment |
|---|---|
| 4% | £528 |
| 4.5% | £556 |
| 5% | £585 |
| 6% | £644 |
| 7.5% | £739 |
| Rate | 25 years | 30 years | 35 years |
|---|---|---|---|
| 3.5% | £1,014 | £909 | £837 |
| 4.5% | £1,126 | £1,026 | £958 |
| 5.5% | £1,244 | £1,150 | £1,087 |
| 6% | £1,305 | £1,214 | £1,155 |
A longer term lowers the payment and can help you pass affordability checks, but you pay more interest overall. You can often shorten the term later or overpay.
A worked example
A couple earning £45,000 and £35,000 with a £40,000 deposit, no debts, looking at 4.5% over 25 years:
- Combined income£80,000
- Loan at 4.5 times£360,000
- Plus deposit£40,000
- Monthly payment at 4.5%£2,001
- Payment if rates rose to 7.5%£2,660
Their combined take-home pay is about £5,387 a month, so the payment would take 37% of it, or 49% at the stressed rate. As first-time buyers in England they would pay £5,000 Stamp Duty at £400,000.
Your deposit and LTV
Your deposit sets your loan to value (LTV). The lowest deposit most lenders accept is 5%, but rates improve at each band: 90%, 85%, 80%, 75% and 60% LTV are common steps.
A larger deposit does not change the income multiple, but it raises the price you can pay and usually lowers the rate, which makes the affordability check easier to pass.
Keep cash back for costs
Do not put every penny into the deposit. You will need money for Stamp Duty, legal fees, the survey and moving costs.
Your credit file
Lenders check your credit file. Before applying:
- check your file with the main credit reference agencies and correct any mistakes;
- register on the electoral roll at your current address;
- avoid applying for new credit in the months before your mortgage application;
- keep credit card balances low and pay everything on time.
Missed payments, defaults and County Court Judgments make lending harder but not always impossible.
Joint and family mortgages
Two incomes usually mean a bigger loan, and some lenders accept up to four applicants. Each person's debts are counted too. If one buyer has a poor credit record, it can affect the whole application.
Some lenders offer "joint borrower, sole proprietor" mortgages, where a parent adds their income to the application without being an owner. That can avoid the second-home Stamp Duty surcharge a parent owner might trigger.
Self-employed and contractors
Self-employed borrowers usually need two years of accounts or tax calculations. Lenders use your profit, not your turnover, and for limited company directors they may use salary plus dividends or your share of company profit. Contractors on day rates can often be assessed on the day rate multiplied by a typical number of working weeks.
How much you should borrow
The most a lender offers is not always the right amount to borrow. A comfortable mortgage leaves room for other bills, savings and rate rises. Many people aim to keep housing costs to around a third of take-home pay.
- CheckYour monthly budget
Add council tax, energy, insurance and commuting to the mortgage payment.
- TestA higher rate
Could you still pay if your rate rose by 2 or 3 points when your fix ends?
- KeepAn emergency fund
Three to six months of outgoings is a common target.
From estimate to offer
- 1Estimate
Use this calculator to find a realistic range.
- 2Decision in principle
A lender or broker gives a conditional figure, usually with a soft credit check.
- 3Make offers
Agents may ask to see your decision in principle.
- 4Full application
Payslips, bank statements and ID are checked, along with a hard credit search.
- 5Valuation and offer
The lender values the home and issues a mortgage offer, usually valid for about six months.
Ready reckoner: income to price
With a 10% deposit and a loan at 4.5 times income, here is the price range each income could reach:
| Household income | Mortgage | Deposit | Price | Monthly payment |
|---|---|---|---|---|
| £30,000 | £135,000 | £15,000 | £150,000 | £750 |
| £40,000 | £180,000 | £20,000 | £200,000 | £1,000 |
| £50,000 | £225,000 | £25,000 | £250,000 | £1,251 |
| £60,000 | £270,000 | £30,000 | £300,000 | £1,501 |
| £80,000 | £360,000 | £40,000 | £400,000 | £2,001 |
| £100,000 | £450,000 | £50,000 | £500,000 | £2,501 |
The calculator works the other way round too: enter a home you are looking at under More options to see the income multiple it would need.
Multiple or affordability: which limits you?
For most people with modest debts, the income multiple is the limit. Affordability becomes the limit when outgoings are high compared with income: large childcare bills, several dependants, a big car finance payment or high commuting costs.
Lenders also look at the rate. When mortgage rates rise, the same loan costs more each month, so the affordability test can bite before the multiple does. That is why maximum loans tend to shrink when rates go up, even for people whose income has not changed.
Different lenders, different answers
Two lenders can offer very different amounts to the same person, because they weigh bonuses, childcare and self-employed income differently. A broker can match you with a lender whose rules suit your situation.
Ways to borrow more, or need less
- Clear or reduce debts before applying, especially car finance and personal loans.
- Lengthen the term. A 30 or 35-year term lowers the monthly payment and can help you pass affordability checks.
- Choose a longer fix. Five-year fixes often face a gentler stress test.
- Add an applicant. A joint application, or a joint borrower who is not an owner, adds income.
- Prove variable income. Two years of steady bonus or overtime may let a lender count more of it.
- Look at schemes. Shared ownership needs a much smaller mortgage for part of a home.
- Grow the deposit. A lower loan-to-value means better rates and a smaller loan for the same home.
Be cautious about borrowing the very maximum. A stretched budget leaves no room for rate rises when your fix ends, or for a change in circumstances such as a new baby or a drop in income.
Your budget after the mortgage
A lender's figure tells you what you could borrow, not what you will have left to live on. On a £45,000 salary, take-home pay is about £2,993 a month. A £202,500 mortgage at 4.5% over 25 years costs £1,126, leaving about £1,867 for everything else.
From that, you will need to cover:
- council tax, which depends on the home's band and your council;
- energy, water, broadband and phone;
- buildings and contents insurance, and any life or income protection cover;
- travel, food, and any childcare or debt repayments;
- maintenance and repairs, which renters usually do not pay for.
Write down a realistic monthly budget before you agree a price. If the numbers only work at today's rate with nothing to spare, consider a smaller loan, a longer fix or waiting to build a bigger deposit.
If you are still deciding whether to buy at all, the rent vs buy calculator compares the cost of buying with renting and investing the difference.