how much do I need to earn to get a mortgage?

If you’re wondering how much income you need to qualify for a mortgage, you’re not alone. The answer depends on several factors, including the property price, your deposit size, existing debts, and the specific criteria of the lender you’re working with. Let’s break it down to help you understand how these factors play into the income requirements for a mortgage.

Understanding Income Multipliers

Most lenders use an income multiplier to determine how much they are willing to lend. This typically ranges from 4 to 4.5 times your annual gross income although there are some lenders might offering, up to 5.5 times your income, depending on your financial situation and their lending criteria. Example:  

– If you earn £50,000 per year, you might be able to borrow between £200,000 and £225,000 (4 to 4.5 times your income).

– If you’re applying with a partner, both incomes are combined, allowing you to borrow more.

Affordability Assessments

Lenders don’t just look at your income and apply a multiplier, they also conduct a detailed affordability assessment to ensure you can manage the mortgage repayments even if interest rates rise. This assessment considers your income alongside your monthly outgoings, existing debts, and regular commitments. The lender will usually lend against the lower of the income multiplier and the affordability assessment. Expenditure considered:

– Monthly outgoings: Utilities, childcare, groceries, travel costs, etc.

– Existing debts: Credit cards, personal loans, car finance, etc.

The Impact of Deposit Size

The size of your deposit can play a crucial role in determining how much you can borrow. While the minimum deposit is usually 5% of the property’s value, having a larger deposit of 10%, 15%, or 20% can increase your borrowing potential as some lenders offer better income multipliers where a larger deposit is being put down.

Credit History

The conduct of your current and previous credit commitments is a key factor in determining on whether a lender will lend to you.  A strong credit profile, no/minimal missed payments can help you secure a higher loan amount and potentially a better interest rate, while a credit profile that includes multiple/consistent missed payments will likely limit your borrowing capacity.

Lender-Specific Criteria

Each lender has its own set of criteria for calculating how much they’re willing to lend. Some lenders might have stricter requirements, use different income multipliers, especially if you’re self-employed or allow different types of income e.g. overtime, allowances, benefits etc.

Government Schemes for First-Time Buyers

If you’re a first-time buyer, government schemes like Shared Ownership or the First Homes scheme might be available to you. These schemes can reduce the initial deposit amount required or provide options for buying a share of the property, which in turn affects how much you need to earn.

Conclusion

The income required to get a mortgage varies based on the property price, your deposit size, monthly outgoings, and credit history. Generally, you can expect to borrow between 4 to 4.5 times your annual income, though this can vary based on the number of committed outgoings. To get a personalised assessment and explore your mortgage options, it’s a good idea to speak with one of our mortgage advisers, who can guide you based on your unique financial situation.