How To Get A High Income Multiple Mortgage
With property prices rising steeply in the most popular parts of the UK has meant that that even mid-career professionals are eager to know if they might qualify for the latest “high income multiple mortgages” available at 5.5x and even 6x annual salary.
How many times my income can I borrow?
Potentially up to 6x income depending on your situation.How do lenders calculate how much I can borrow?
The FCA’s restrictions on mortgage lending were introduced in 2014, following a review of the whole mortgage industry.
Banks and building societies were no longer allowed to just look at the maximum a borrower could pay (by verifying salary and other sources of income). Instead they were obliged to carry out an in-depth assessment of how much each borrower could afford.
This new affordability assessment looks at all of a borrower’s regular financial commitments:
- childcare costs
- school fees
- utility bills
- car costs
- membership fees
- credit commitments
Lenders now need to be reassured that you can not only afford this additional mortgage commitment now, but also in the future when the mortgage interest rate might have substantially increased.
FCA limits on big-mortgage lending
At the beginning of 2017 lenders had a new constraint put upon their mortgage lending: an absolute limit on the number of mortgages they’re allowed to issue at more than 4.5 times an individual’s income (or 4.5 times the joint income on a combined application).
The number of high loan to income ratio (LTI) homeowner mortgages that lenders can write is capped at an average 15% per quarter.
High income multiple mortgages are available for some mortgage applicants
Some lenders are using this 15% allowance to advertise mortgages at generously high LTI’s for specific types of borrowers – including first-time buyers.
- A number of mortgage lenders are offering deals equivalent to five times salary, but with deposit requirements of 25%, or a minimum income of £75,000. (These borrowers are more likely to be homeowners trading up in expensive housing areas, than first-timers getting on the property ladder.)
- There are other institutions lending at just below five times salary who require only a 10% deposit.
- One bank is offering 5.5 times income mortgages, with a tiny deposit requirement of just 5%.
- The first-time buyers they’re targeting need to be qualified professionals such as accountants, lawyers, chartered surveyors, architects, dentists, doctors, vets and pilots. And they need to be earning at least £40,000 a year.
- A few lenders are offering high loan to income mortgages up to 6x income. One building society is offering a massive six times (6x) salary deal on its "professionals mortgage": for borrowers who must be fully qualified, practising and registered professionals - so you need to be an accountant, actuary, barrister, dentist. engineer, medical doctor, optometrist, pharmacist, solicitor or vet. For joint applicants, where the second applicant is not a "professional" the maximum borrowing on the 2nd applicant's income will be up to a maximum of 4.5x salary.
- Another lender is offering 6x loan to income for those looking to remortgage as long as the loan to value is no higher than 60% with no minimum credit score and no borrower legal representation required.There is also no restriction on property construction types and no borrower legal representation is required.
How can I maximise the mortgage I can borrow?
You can’t suddenly acquire an engineering degree (or at least not a legitimate one).
But you can make yourself eligible for borrowing from the widest range of lenders possible – giving yourself access to the best mortgage deals you could get – by prepping your mortgage application and being proactive in improving your credit rating.
At least a year before you want to start applying for a mortgage you should start taking action which will improve your "qualification" for a mortgage:
1. Push for an improvement in your employment status
- A transfer from fixed-term or temporary contract to permanent contract
- A pay rise
will both significantly improve your mortgage eligibility.
Most private-sector employers respond to pay increase requests from employees rather than proactively reviewing salaries. If you’ve been with your employer for at least a year, and can provide evidence of your effectiveness, this is a reasonable request that you can’t be penalised for.
2. Prep your mortgage application
Starting to assemble all the documentation you will need will highlight any changes you need to make to improve your mortgageability.
Documents you need for your mortgage application:
- Passport or driving licence (as proof of identity)
- Current utility bills (as proof of address)
- P60 form from your employer
- If you’re self-employed: statement of your accounts from an accountant for the past two to three years
- If you’re self-employed or have earnings from more than one source: tax form SA302 from HMRC
- Current account bank statements for the three months immediately previous
Look at the recurring payments on your bank accounts and consider whether you need to make changes (multiple store credit card accounts, and regular payments to bookmakers could be a red flag).
3 Improve your credit rating
Taking action in advance to improve your credit score gives you access to the widest number of possible lenders for your circumstances, and a chance to pick and choose the best rate.
Having unforeseen problems on your credit rating wastes time on mortgage applications that are refused further down the line. And narrows your field of choice. Subsequent mortgage lenders will be able to see previous credit checks that were made, and will be deterred by a number of loan applications that haven’t proceeded.
Check your credit score:
Not all lenders report credit details to all three of the UK credit agencies, so you need to check all three:
Checking your own credit score yourself doesn’t affect your rating.
Fix any problems:
- Update any incorrect old addresses related to bank accounts etc
- Challenge any accounts which you believed you had closed but which are still presenting monthly direct debit requests which are being refused (mobile phone companies / broadband suppliers are particular culprits)
- Get a notice of disassociation from anyone you used to be associated with financially (an ex partner or flatmate) who may have a poor credit rating
- Avoid making multiple applications for new additional credit (any kind of hire purchase, store credit cards, or online credit)
- If you’re cancelling any regular service that you pay for by direct debit, keep a record of your service cancellation but leave the direct debit in place until the service provider cancels it and refunds any payments
- Take out a joint credit card with someone who trusts you, who has a strong credit rating (such as a parent) which will be "shared" with you
You can also read our blog on How to get a large mortgage loan
What else can you do to improve your mortgage offer?
You’ve got two remaining cards up your sleeve.
Apply for a longer mortgage term
You may not win a larger loan offer, but you could substantially reduce your monthly payments.
Affordability is usually calculated over a standard 25-year mortgage term. If you apply for a 30 or 35-year term, your monthly repayments will be lower. But the overall cost of interest that you’ll be paying over the term of the mortgage will be significantly higher.
Using a specialist mortgage broker
Individual mortgage lenders can only provide information about their own mortgage products. Finding out about alternative offers that might be available from any of the 300+ mortgage lenders in the UK is difficult and time-consuming - and many of them can’t be contacted directly by potential borrowers.
A well-connected mortgage broker will know about the full range of mortgages available right across the market and will be able to advise on high income multiple mortgages e.g. on a 5x or even 6x basis.
They’ll be able to propose the lenders who will look most favourably on your particular circumstances, and will “package” your application so it demonstrates your suitability for their lending criteria.
The result can be a more generous mortgage offer, a cheaper borrowing rate or a variation in the terms (such as a shorter initial period with early repayment charges) which will suit your individual circumstances better.
What are the pros and cons of borrowing at a higher income multiple?
With more options for higher borrowing care needs to be taken over whether a large mortgage is suitable for your circumstances.
Things to consider include:
- The cost of monthly borrowing - Whilst there are options for borrowing in excess of 4.5x income could saving for a bigger deposit or waiting until you earn more be a better option?
- Future employment prospects - before taking out a home mortgage, it is important to consider how your personal finances might change or fluctuate in the future. If career progression and increased future earning increases are likely to happen then the option of making mortgage overpayments can help you to get your debt exposure down.
- Other living expenses - While your mortgage repayments might be your biggest monthly cost it is important to think about other expenses such as council tax, utility bills, before committing to higher monthly payments.
Clifton Private Finance
We have access to a range of specialist mortgage products many of which do not meet the "one size fits all" approach of minimum credit score or an automated process. Give us a call to arrange a suitable time to talk through what you need: