We need to borrow 6 times our salaries can you help us get a mortgage.
When I first wrote about 6 times income mortgages back in 2011 I did not appreciate the response to enlist my help would be so great. Interest rates were at that point destined to remain at their historical low, making the calculation actually percentage wise much more affordable that the three times standard which was bought about by the eighties and nineties underwriting when rates reached 15%.
So what now, two years on, for the six time income mortgages? Well I’m seeing no let up and continue to write good levels of business in this area. The rules apply to single and combined joint incomes. Employed and self employed applicants also can qualify, however the latter needs to be showing a steady incline year-on-year in their accounts.
Since the lead up to the Mortgage Market Review (MMR) there has been a change of emphasis on affordability with financial dependents, such as children or parents living with you, seen as a drain. As a rule of thumb one dependent could lower the maximum income multiple to 5.5x income and more dependents lower still.
Caution and expert advice from a professional Mortgage Broker, such as Niche Advice, should be sought when getting a six times income multiple mortgage. Why? Well even if you obtain one you still need to be able to make the repayments! And, rates will rise again – albeit this is not likely to happen until after the election in two years time.
What helps me get a 6 times income mortgage?
Well lenders are pliable and by that I mean when presented correctly they can give a little on their underwriting policy in one area on the basis you have a ‘good’ standing in the others. For example, if your job grosses less than £10,000 a year it will not be viewed as favourably as someone on £25,000. Likewise if you are young and have your career ahead of you the lender will think your earning potential will increase whereas if you are ten years away from retirement in will be harder. Its about the positioning in the conversation and application process to the lender so you might want to use a professional Mortgage Broker such as Niche Advice Limited.
What types of income are taken into account in a six times income mortgage?
Here is a list of the income that can be included in a 6 x income mortgage:
- Basic salary
- Net profits for the self employed sole trader or partnership
- Salary and dividends for a shareholding director of a limited company
- Pensions and annuities
- Second job (same line of work is preferable)
- London weighting or large town allowance
- Bonuses, overtime and commission (must be a regular and ongoing feature of pay)
- Shift or car allowance
- Mortgage subsidy or housing allowance
- Employment in a family business
- Short term and long term contracts (history of renewals is essential)
- Fostering income
- Surplus rental from investment properties (specific formula)
In theory child benefit and working tax credits can also be taken but bear in mind dependents are likely to reduce the six time income multiple.
Frequently Asked Questions (FAQs) on six times income mortgages
I have poor or fair credit score can I obtain a six times income mortgage?
These mortgages are not available on this basis.
I have just swapped job can I get a six times income mortgage?
Yes, if you are a on a short term or long term contract with a track record of renewal then this should be fine, likewise if you are a permanent member of staff who does not need to work a probationary period.
What is the minimum deposit needed for a 6 times income mortgage?
You are looking at 10% minimum as a deposit. Therefore if you are looking to buy at £100,000 you would need £10,000. This can be supplied by parents as a gift.
I’m buying with someone else are both our salaries taken on a six times mortgage?
Yes, so if you earn £20,000 and your partner £15,000 the maximum borrowing would be £35,000 x 6 = £210,000.
I have a credit card and personal loan how do these affect a 6 x mortgage?
They can have a significant bearing on your affordability depending on how much you pay towards these in a year.
As a guideline these are deducted of your basis salary before the income multiple is applied. For example you have a credit card which costs you £25 per month and a loan £100. You earn £25,000 a year.
£25 + £100 = £125 x 12 = £1500 per year.
£25,000 – £1500 = £23,500 x 6 = £141,000 maximum borrowing (approx).
If you are able to pay off your debt before the mortgage completes the deduction will not be applied.
I have another property that is let how does this affect a 6 times mortgage?
The rental income needs to exceed the mortgage payment by a margin. If the margin is significant some of the surplus rent could also be factored into the six time income mortgage calculation.
Is a six times income mortgage also available on a remortgage basis?
I’m married can I buy in my sole name on a six times income basis?
No, if you are married it must be a joint application.
I have had credit issues can I get a 6 x income mortgage?
No, these mortgages are only available to applicants who have conducted their credit commitments very well.
As a rule of thumb if you have county court judgements (CCJs), arrears, defaults you are looking at a maximum of 4.5 times your income.
For individual voluntary arrangements or bankruptcy a maximum of 3.5 times your income.
As a finance specialist of course it is in my interest to get you a mortgage but I also need to make sure that any type of finance is affordable for you and although in theory we can get you a mortgage up to 6 times your income you really have to think carefully about gearing yourself up so much. Please remember mortgages are for a very long period up to 25 to 30 years and your income needs to be sustained throughout the term. The last thing you want to do is get yourself in a commitment where it may be short-term feasible but longer term can put your financial health at risk.
For more information on six times income mortgages please complete the online form on the right-hand side of this page alternatively contact us on 020 7993 2044.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.