How Much Mortgage Can I Get For My Salary?

09 June 2021

The mortgage process can be extremely confusing and complicated – especially for those who are first time buyers. Mortgage lenders go through extensive assessments and checks when deciding how much to lend and whether or not your mortgage is affordable for you long term. 

Here, we explain how lenders carry out these decisions and how the salary to mortgage ratio they use works.

How Do I Find Out How Much I Can Borrow?

A great place to start when researching how much you may be able to borrow is an online mortgage calculator. Online mortgage calculators are good at giving you an idea of your borrowing potential – however it’s important to remember that it is only an estimate. 

• Online calculators ask for details on:
• Your income or salary
• How many dependents you have
• Existing debt

The calculator will then give you the potential mortgage amount you could borrow to buy a property, based on the information you gave.

Whether you can borrow that amount or not, will evidently depend on more in-depth assessments which your lender will carry out after you apply.

How Mortgage Lenders Assess Your Income

Your lender will require a lot of information regarding your income, debt levels and lifestyle habits when you apply for your mortgage.

1. How much you earn

If you’re employed, your lender will take your salary into account, as well as other income streams such as: 

• Pension income
• Investment income
• Child maintenance or ex-spouse support
• Overtime payments
• Commission 
• Freelance income

2. Your outgoings

Your lender will offset any regular outings you have against your income, these include:

• Credit card payments
• Child maintenance payments
• Insurance policies
• Loans or hire purchase agreements
• Utility bills, broadband costs and mobile phone costs
• Any other living costs, such as recreation and childcare

3. Repayment affordability

Your lender will perform a ‘stress test’ along with your income and outgoings. This includes looking at any future events that could affect your ability to pay your mortgage, including: 

• A rise in interest rates
• Redundancy or job losses
• Long-term illness
• Having a baby or taking a break from work

What Your Mortgage Lender Requires From You

Your lender will undertake income and affordability assessments after you have provided them with a number of important documents, these include:

• Payslips from the last three to six months to prove your income
• Bank statements from the past three to six months to highlight your outgoings 
• Latest P60 document showing your annual income
• Proof of other incomes you may have such as dividends, investments or child maintenance 

Your lender will also require:

• Proof of identity, such as, a copy of your passport or driver’s license
• A certified copy of a recent utility bill for proof of current address
• If you are self-employed, you’ll need to give your lender the following:
• A SA302 tax return form, stating your earnings from self-employment
• Two or three years of certified accounts if your business is incorporated
• Proof of dividend income on top of any salaried earnings

What Salary to Mortgage Ratio Do Lenders Use?

The standard salary to mortgage ratio used by lenders is 4.5 times an annual salary. This means it is possible you could borrow 4.5 times your annual salary as a mortgage.

Therefore, if you earn £40,000 per year, you may be offered a mortgage of £180,000 – however, that is a simple equation that does not factor in debt or outgoings you may have.

Can I Get a Mortgage That’s Six Times My Salary?

Mortgages that are six times your annual income are very rare and only realistically reserved for high earners with no or very little personal debts. There are also likely to be maximum loan size restrictions on these loans, as well as maximum loan-to-value percentages and you will almost certainly pay a higher interest rate as well.

How Can I Increase My Chances of Getting a Mortgage?

The best way to boost your chances of being accepted by a lender and getting the mortgage you want is to lower your debt-to-income ratio (DTI). 

Lenders will calculate your DTI based on your earnings and level of debt, as part of their assessment.

If you reduce your debt before applying for a mortgage, you’ll reduce your DTI – making you more attractive to lenders.

To work out your DTI:

• Calculate your monthly living costs (including your projected monthly mortgage payment), credit card payments, loans or hire purchase payments
• Calculate  your monthly incomings, including your salary, any benefits, child maintenance, additional income or investment payments
• Divide your total monthly debt by your total income
• Multiple this by 100 to get your DTI

For example a monthly debt of £1,200 and a monthly income of £3,400 would result in a DTI of 35%. The lower your DTI, the more likely you will be approved for a mortgage

How Does a Loan To Value Affect Borrowing Potential?

Loan to value (LTV) is the percentage of your property’s purchase price covered by a mortgage. Therefore, the higher your LTV, the bigger the risk for your lender. By saving a larger deposit, you will lower your LTV and become more attractive to mortgage lenders.