So, you’re at the point where you’re ready to get a mortgage. You’ve saved for your deposit, your credit rating is in peak physical condition, and you’ve even been eyeing up a few properties in the area. Now everything hinges on how much you can actually borrow.
When it comes to how much a mortgage lender will loan you to buy a house, it’s all going to come down to what you earn and your existing financial commitments. All mortgage providers base their lending decision on the principle of affordability.
As just mentioned, mortgage lenders all have an affordability calculation when deciding how much they will lend you, however, this normally works out to be around 4 – 4.5 times your joint salary.
But what if you have your heart set on something a little pricier? Would it be possible to borrow more….?
Can I Get A Mortgage For 5x My Salary?
The short answer is; yes, 5x salary mortgages do exist. Unfortunately they aren’t thrown around willy-nilly.
Most mortgage lenders will cap the amount that you can borrow at 4 – 4.5 times your income, but there are a small number of providers who will stretch to 5 times your salary if you meet their criteria!
So, where can you find these magical-unicorn-type mortgage lenders?
Well, they’re not easy to find, which is why I would always recommend speaking with a mortgage broker when you’re considering any type of mortgage.
Mortgage brokers (like us at More Than Money!), have access to all the lenders on the market, including those not in price comparison sites and we know exactly which lenders will offer the type of mortgage you’re looking for.
But enough about us and how great we are for a second…
Once you’ve found a lender who is willing to lend a higher-than-average income multiple, you have to make sure that you qualify – the same as you would with any other mortgage.
Mortgage lenders, especially those who are offering mortgages based on higher income multiples, like to know that they’re not taking too big a risk in stumping up the cash.
This is why lenders want you to meet certain criteria before they’ll give you a mortgage, and 5x salary mortgages are no exception…
What Criteria Do I Need To Meet In Order To Get A 5X Salary Mortgage?
1. Size matters – when it comes to deposits. The more money you have to put down upfront – this is known as the loan to value (LTV), the better your chances of getting a mortgage
2. If you’re employed on a permanent contract, and look set to be for the foreseeable future, then congratulations – you are a mortgage lender’s favourite child, and your chances of getting a 5x salary are better.
It is still possible to get a 5x salary mortgage if you are self-employed, but you will need to show a minimum of 2yrs income from your tax returns. I recommend talking to a mortgage broker first who can give you advice on self-employed mortgages.
3. If you have a lot of big, regular outgoings, it could affect how much you can borrow.
4. Your credit score is very important. I know this won’t come as a surprise to learn, but if you have a history of bad credit, it’s likely to affect you even being able to get any mortgage!
I always recommend getting your credit score in as good shape as possible before applying for a mortgage, paying off or reducing any debts that you can and checking that all of your information is correct. It might mean having to put your homebuying dreams on hold for a year or so, but it will be worth it.
5. The type of property you’re looking to buy could also be the difference between getting offered a mortgage, and not. The majority of lenders prefer houses made of bricks and mortar (maybe they’ve learnt something from The Three Little Pigs), but there are some specialist lenders out there if you’re interested in something more unusual.
As you’ve probably noticed, this list of criteria is pretty much standard for any type of mortgage, and although criteria can vary from lender to lender, most of this list is going to apply.
So what makes 5x salary mortgages more difficult to get?
Why Is It More Difficult To Get A 5x Salary Mortgage
In a nutshell, it’s because most UK mortgage lenders cap lending at 4 to 4.5 x salary.
But why those numbers?
Well, first of all, the Bank Of England restricts mortgage providers from holding more than 15% of mortgages at 4.5 or higher. So it’s their fault.
Secondly, lending higher income multiples is riskier because the lender stands to lose more money in the event that anything goes wrong, and if there’s one thing that mortgage lenders hate more than anything, it’s risk.
How Does A 5x Salary Mortgage Work If I Want A Joint Mortgage?
Put simply, it’s going to be a bit easier to get.
Applying for a joint mortgage with someone else is going to boost your borrowing power. Because both incomes can be included on the mortgage application, you can get a bigger loan.
Applying for a joint mortgage can also work in your favour with some lenders who might consider you a less risky prospect than someone applying for a mortgage with one wage.
This is mainly due to the fact that if one joint borrower loses their job, the income of the other person could potentially still cover the monthly mortgage payments.
How Much Deposit Do I Need For A 5x Salary Mortgage?
As I’ve already mentioned, the bigger your deposit, the better your chances when it comes to any type of mortgage, including 5x salary mortgages.
The amount of deposit you’re going to need in order to qualify for a mortgage really depends on what type of mortgage you’re trying to get. For example a residential mortgage will typically have a lower deposit requirement compared to a buy-to-let mortgage.
This is because the mortgage repayments on a home you live in yourself is reliant on your wages, rather than with a buy-to-let, for example, it’s reliant on your ability to find tenants to pay the rent.
If you’re a residential buyer it can be very possible now to get a mortgage with just a 5% deposit, although some lenders will ask for 10%, meaning your loan-to-value rate (LTV) is 90% – in other words, you need to borrow 90% of the value of your home.
If you can save for longer and put down 15% or even 20%, then so much the better as it will give you access to more lenders and better interest rates, meaning you’ll pay less for your mortgage overall.
However, when it comes to getting a 5x salary mortgage with a 5% deposit (let’s face it, just saving that amount wasn’t easy!), it is possible. But be aware that having a larger LTV does mean that your credit rating needs to be squeaky clean!
Can I Get A 5x Salary Mortgage if I Am Older?
With age comes wisdom, experience, and back pain – but where does it leave you when it comes to getting a 5x salary mortgage?
Most lenders have age caps in place, typically 70, but that doesn’t apply to all lenders.
The reason for this is that most people experience a drop in income once they reach retirement age, as well as being more likely to have health issues that could make it harder to keep up with the mortgage repayments.
If you want to take out a mortgage and it’s going to take you into retirement, a lender is going to want to know how you’ll repay the loan once you’re not working. It could be that you have enough savings, or that your pension is sufficient to pay your mortgage.
As with anyone applying for a mortgage, if you’re older you’ll need to be able to prove your income with payslips and bank statements from your current account and any savings accounts you might have, including a private pension. Your state pension can also be included as part of a lender’s assessment of whether or not you can afford to pay your mortgage.
Can I Get A 5X Salary Mortgage If I Am Self-Employed?
As I said earlier, it is possible – providing you have a minimum of two years’ accounts and meet all of your chosen lender’s criteria.
Getting a 5x salary mortgage is an option for contractors, freelancers and limited company owners – but self-employed mortgages aren’t always immediately obvious when you’re searching online…
…which is why….
Whatever your age, work status, deposit size or credit history, speaking to a mortgage broker really is the best way to find out whether you would be eligible for a 5x salary mortgage, and where to find the best mortgage deal for you.
At More Than Money, mortgages are what we do best. So get in touch with a member of our expert team today.