Income Multiples

Your 'income multiple' is used as a guide to how much a lender will be prepared to advance you on a mortgage. As a very rough rule of thumb the maximum amount you are normally able to borrow to purchase a property will be three times your annual salary. However, multiples of up to 4 times income are not uncommon. Alternatively, it tends to be 2.5 times your 'joint income' if you are buying with a partner.

As an individual, this would mean on a salary of £25,000, you could expect to raise a mortgage of £75,000. As a couple, with one earning £25,000 and the other £20,000, you would be able to borrow up to £112,500.

The above is not set in stone. There will be occasions when you'll be lent more.

The 'income multiple' rule of thumb may be useful for the lender as a guide but it will tell you little about how much you can actually afford to repay. This is because mortgage rates are a key factor in determining the affordability of houses. The lower the rate the less a given mortgage is going to cost you but if interest rates rise the actual cost to you each month will also rise.

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Last Updated: August 2007 © Moneyextra.com

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