Can I Get A Mortgage For 5X My Salary?
If you have your heart set on a specific property but you are not sure whether you will be able to get a mortgage for the full value, you might have the option to borrow up to 5x your salary, depending on a number of factors.
Typically, mortgage lenders will allow you to borrow up to 4.5x your income but some lenders may be prepared to lend up to 5x your salary, if that is how much you want to borrow.
- Why are 5x mortgages difficult to get?
- Deposit size
- Income and employment status
- Credit score
- How can I improve the chances of getting a 5x mortgage?
- Have a bigger deposit
- Have a steady job and income
- Reduce your outgoings
- Improve your credit score
- Take out a joint mortgage
- How to find a 5x mortgage lender
Why are 5x mortgages difficult to get?
Your income is a key determiner in the calculation of how much a lender will agree to lend and they will look at how much is realistically affordable each month. Lending you more money than you can afford is a big risk, so only a few lenders are prepared to take on that risk.
Regulators also ensure that lenders are not lending more than homeowners can afford, by demanding strict lending criteria to be met. The Bank of England also sets restrictions to prevent a lender holding more than 15% of their mortgages at 4.5x or higher.
However, there are some lenders who will do a deeper analysis of other risk factors to decide whether they should offer a 5x mortgage. The factors that they review are:
The larger the deposit you can put down, the more likely you are to be approved for a 5x mortgage. There is less risk of the lender losing money if you have put a bigger deposit down against the property. Providing a larger deposit has a number of other benefits, such as being able to access better deals with lower interest rates.
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Income and employment status
Mortgage applicants who are on PAYE salaries will usually be preferred over self-employed applicants and other people who have variable income. The higher your income and the more stable and guaranteed it is, the better.
The lender may look at how long you have been employed by your existing employer to determine whether you have job stability, so if you have recently started a new job this could make it more difficult to get a mortgage approved.
Company directors who draw dividends may also find it more difficult to find a mortgage lender that will provide a 5x mortgage. A specialist broker such as Boon Brokers, who understands the mortgage market will help you to find the right mortgage lender for your employment type.
Even if you have a reasonably high, regular income, if you have a large number of outgoings, this will have a significant impact on your mortgage application decision. The lender must decide whether you can realistically afford to meet your mortgage payments and all your other financial commitments each month.
As well as having enough money to pay the mortgage amount each month, other outgoings such as bills, credit card repayments, loan repayments and any other regular monthly payments must be covered. In addition to this, the lender will also take into account other regular outgoings such as your grocery shopping, money spent on clothes, travel costs, socialising and hobbies.
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The lender will check your credit history to see whether you are a reliable debtor. If you have missed any payments for loans or other types of credit, you are less likely to be approved for a mortgage with most lenders. You may need to use a mortgage broker to find a lender who specialises in adverse credit mortgages. If you have CCJs or bankruptcy on your credit file, many lenders will automatically decline your mortgage application.
You might pass the income and affordability criteria but if you have a poor credit score, this is likely to make it much more difficult to get a 5x mortgage.
How can I improve the chances of getting a 5x mortgage?
Lenders are able to offer a higher loan to income ratio for up to 15% of their mortgages, meaning that there are some carefully selected applicants who will get approved for a 5x mortgage. If you need a 5x mortgage to buy the property you want, then there are a few ways that you can boost your chances:
Have a bigger deposit
As we mentioned in the risk factors used in the mortgage application decision, having a larger deposit will significantly reduce the risk to the lender and improve your chances of getting a 5x mortgage.
Therefore, instead of putting down a 10% deposit, if there is a way that you can provide a 20% deposit instead, this will put you in a better position. It may be that you need to wait and save up for longer, or you might be able to borrow some money from a family member to boost your deposit.
Have a steady job and income
Some careers are deemed as more stable than others, for example, working as a teacher or a doctor would be regarded as a more stable job. You are usually less likely to lose your job than if you worked for a business or industry where redundancies are common. The lender will be looking at how stable your job is to decide how much to lend to you.
If your income is largely made up from bonuses that are not guaranteed, the lender is less likely to consider these payments to calculate your income. You might be able to negotiate with your employer a more consistent type of payment.
Self-employed people will need to provide at least two years’ of certified accounts and sometimes by providing more years, this will improve your chances of getting a 5x mortgage.
Reduce your outgoings
Before you apply for your mortgage, try to reduce your outgoings as much as you possibly can. You should take a look at your bank statements to see exactly what you are spending your money on. Look for any payments that you can eliminate, such as a gym membership you are not getting enough use out of, or a subscription that you do not really need.
Also check whether you are able to switch service providers to get cheaper deals on your energy supply, broadband or TV package, and you can try to get cheaper insurance policies. By using comparison sites, you might be able to make a significant reduction to your monthly bills, which over the course of a year will save you a lot of money.
You also need to review what would be classed as luxury spending. If you are spending money on going out for expensive meals, treating yourself to new clothes, or any other unnecessary treats each month, try to cut back a bit on what you spend.
If you have any loans that are coming up to the point where they will be fully paid off, it might be worthwhile waiting until the last payment is made before you apply for your mortgage. You should also try to reduce your credit as much as possible, so pay off as much as you can on any credit cards or store cards.
Another good way to bring your monthly outgoings down is to be more careful with your grocery shopping. See if you can buy the same products cheaper at other supermarkets and look at ways you can reduce the cost of your meals. Cooking batches of food at a time and freezing them can help to reduce food spending and make sure that food does not go to waste.
Improve your credit score
Before you apply for a mortgage, check your credit score with a credit agency like Equifax or Experian. You should be able to see details of your existing credit accounts and payments you have made since you took the product out. If you have any missed payments listed on your credit file, the longer ago they were, the less they will affect your current score.
If you have had missed payments within the last six months, you could wait a bit longer to apply for your mortgage to improve your recent credit record by making all payments on time.
You may have been financially associated to somebody like an ex-partner or housemate and their adverse credit could affect your credit score. You should be able to review any financial associates on your credit file using a credit agency.
If you had a joint mortgage or joint bank account, this will usually mean you are financially associated. After six years, a closed product that you had with the person will no longer show on your file. You can request a disassociation through the credit agency that has them listed as your associate.
Another way to improve your credit score is to reduce the amount of money that you owe. Do not take out any credit in the lead up to applying for your mortgage and try to pay off as much debt as you can afford. It might be better to use some of your deposit to pay off an outstanding debt, if you have saved more than the minimum deposit required.
The least amount of credit you have outstanding, the more likely you will be able to get a 5x mortgage approved.
Take out a joint mortgage
Applying for a mortgage as an individual applicant will mean that the mortgage amount will be based just on your income. If you apply with for a joint mortgage with your parents, or your partner, the mortgage amount will be calculated on your joint income, which could enable you to borrow more.
However, you should give careful consideration as to whether it is the right decision for both parties. You should not rush into taking out a mortgage with someone you have not been in a relationship with for long. If the relationship breaks down, you might have to sell your home and pay early repayment fees and solicitor costs.
How to find a 5x mortgage lender
There are not many lenders who will agree to a 5x mortgage, unless you are a very low risk borrower. As well as doing as much as you can to reduce your risk, working with a broker will enable you to access the lenders who are more likely to approve a 5x mortgage.
At Boon Brokers, we have helped many people to buy their dream home by finding a lender who reviews the other risk factors to decide if they will approve a 5x mortgage. We will also make sure that this is in your best interests, as borrowing too much could leave you in a poor financial situation. If you are unable to make your mortgage repayments, your home could be repossessed, and you could end up with a CCJ on your file.
Therefore, before applying for a 5x mortgage, you should consider whether there are other options, such as buying a property that is not as expensive. Another option to consider is whether you could wait a bit longer to save more deposit up, so you will not have as big a mortgage.
Taking out a mortgage is a huge financial commitment that you can be tied to for 25, 30 or even 35 years, so be cautious when deciding what property price range that you want to go up to.
In many cases, as long as you can afford the mortgage in your current situation, you will be fine with a 5x mortgage as your income will hopefully increase and you might also pay off other debts over time. However, you should also think about the consequences of not being able to repay your mortgage if a 5x mortgage will push you to your financial limits.
Request a free consultation with one of our expert mortgage advisors at Boon Brokers and we will be able to help you find the best mortgage deal for your circumstances.