What are mortgage multiples?
Mortgage multiples are essentially numbers which lenders use to decide how much they can lend to you. Mortgage lenders will use a multiple of your income to determine the maximum they may be able to lend to you.
When thinking of mortgage multiples it is important to note that mortgage lenders consider your before-tax annual salary and not your after-tax salary. This makes it easier for everyone to calculate what they may be able to borrow based on the mortgage lenders mortgage multiple.
Example of a mortgage multiple could be Lloyds bank having a mortgage multiple of 5. This means they may lend to you 5 times your income.
If you wanted to get a £300,000 mortgage with Lloyds bank and you had an annual income of £50,000 then the maximum they will lend to you will be 5 x £50,000 which will be £250,000. This means the maximum Lloyds bank will lend to you based on their income multiple will be £250,000 and you will have to fund the deficit of £50,000 with your mortgage deposit.
A mortgage lender may also have several mortgage multiples across one product or across its product lines based on different criteria and circumstances. This is why it is very important to speak to a mortgage broker who may have some experience of dealing with mortgage brokers and know what sort of mortgage multiple may be on offer based on a borrower's circumstances.
E.g a prospective mortgage borrower with a CCJ may have a different mortgage multiple than one with a good credit score as they may be offered a different product with a different rate from the same mortgage lender or the same product with the same mortgage rate from the same mortgage lender.
How to ensure you get a good mortgage multiple?
To get a good mortgage multiple you will usually need:
A good credit score: A good credit score is very important as it means you always repay your credit commitments. With this in mind, mortgage lenders may be willing to lend more to you by increasing their mortgage multiple.
A sufficient mortgage deposit: A good mortgage deposit won't necessarily mean the mortgage lender will increase your mortgage multiple but in some cases having a good mortgage deposit could increase how much a mortgage lender may be willing to lend to you.
A standard construction property: Standard construction properties won necessarily get you a better mortgage multiple but without one, you may find mortgage lenders may be much stricter with their eligibility requirements.
Do mortgage multiples matter?
Mortgage multiples aren't the only way mortgage lenders determine how much they will lend to you. When giving a mortgage in principle most mortgage lenders will happily use a mortgage multiple as it is cheap and easy to understand to both the mortgage lender and the prospective buyer.
As you may already know, a mortgage inprinciple is not a guarantee that the mortgage lender will lend to you but simply an indication that they may lend to you and how much they may lend to you.
The reason why it is an indication is simply because of factors such as the mortgage multiple. A mortgage multiple is a basic assessment format and does not represent a thorough mortgage affordability assessment and this is why so many borrowers get a mortgage in principle and then get declined.
Before a mortgage lender will issue you a mortgage offer they will likely take a deep look into your finances to work out your monthly disposable income, your monthly committed expenses and your monthly living expenses.
So, in so many ways mortgage multiples are relevant as they give you an indication of whether a mortgage lender may be able to lend to you but they don't give you a true reflection of your mortgage affordability, for this you have to speak to the mortgage lender or a mortgage broker who may be able to assess your mortgage options and give you a more realistic indication of how much you may be able to borrow regardless of the mortgage multiples the mortgage lenders offer.
What impacts the mortgage multiples?
There are several factors that can affect the mortgage multiple a mortgage lender may be willing to offer.
Some mortgage lenders will not be too restrictive and can even offer mortgage multiples above their stated criteria of a borrower makes the mortgage less risky for them by increasing a mortgage deposit or putting collateral down.
In other cases, if you increase the mortgage term on your mortgage then you may find that there are some mortgage lenders that may be willing to lend more to you and increase their mortgage multiples.
How to figure out what you can afford without mortgage multiples?
To figure out how much you can afford and get a more certain or accurate amount in regards to how much you can borrow without relying solely on mortgage multiples you may want to use a mortgage affordability calculator which takes into account your individual circumstances and the mortgage lenders lending criteria to match you with the right product on offer by mortgage lenders.
This will also indicate how much they may be willing to borrow to you on each specific product and at what rate.
How does joint borrowing affect mortgage multiples?
Most mortgage lenders limit the number of people who can get a mortgage to two or three and they will still combine their income and apply a mortgage multiple to figure out what they can borrow in total.
As mentioned above, the mortgage multiple given at this stage is simply an indication and when a mortgage lender comes to make a mortgage offer they may find that your monthly spending has no room for a mortgage repayment and therefore offer you a smaller mortgage multiple or decline your mortgage.
Can I boost my income with supplemented income?
Yes, there are some mortgage lenders that will count any benefit or overtime etc towards your income and this could help when considering the mortgage multiple is based on tour total annual income.
Not all mortgage lenders accept supplemented income and those who do may not accept 100% of the supplemented income and put it towards your annual income when applying a mortgage multiple to work out the total amount they may be able to lend to you.
There are some mortgage lenders that accept benefits and others that don't.
If benefits or other supplemented income are a big part of your annual earnings then you may need to speak with a mortgage broker who has some experience of dealing with mortgage lenders who cater to applicants such as yo so they may provide you with suitable mortgage borrowing options.
Some of the supplemented income mortgage lenders may accept and apply a mortgage multiple on include:
- Pension income
- Investment Income
- Overseas earned income
- Maintenance Payments
- Working Tax Credit
- Disability Living Allowance
- Rental Income
- Child Benefit
- Child Tax Credit
How do mortgage multiples affect me if I am self-employed?
Self-employed borrowers usually find it harder to prove their income and in some cases, those with complex incomes may find it hard to get a mortgage.
If you are self-employed and you have been trading for three years plus then you may find that getting a mortgage isn't too complex.
If you are self-employed and you haven't been trading for up to 12 months and you have a complex income then you may find it harder to find mortgage lenders who may be willing to lend to you.
Regardless of your situation, as a self-employed borrower, your main aim may be to find a mortgage lender who accepts a higher percentile of your earnings and can apply a mortgage multiple to this.
In this case, you may have to walk a fine line between finding a mortgage lender with a high mortgage multiple and one who accepts a higher percentile of your self-employed earnings.
A self-employed mortgage broker may be able to assist you in finding suitable mortgage options that meet your needs.
Can government schemes boost your mortgage multiple?
You may find that there are government schemes which helpyou boosts your mortgage deposit and in turn a mortgage lender may be willing to offer you an increased mortgage multiple due to this.
Some of these government schemes include:
- Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.