How much mortgage can I afford on my salary? If you are currently living in rented accommodation, or worse, still at home, no doubt this is a question that vexes you every time your landlord drags his heels over fixing the dodgy central heating or your mum interrogates you about your whereabouts the previous weekend.
Unless you have suddenly hit the jackpot and are a cash buyer, a mortgage is usually the only way most people can afford to buy their dream home. Unfortunately, in these current times of economic strife and recession, finding a lender who is willing to offer you a mortgage is not as simple as it once was. The days of 105% mortgages and lenders who were happy to let you borrow five or six times your income are long gone, which means it is very important to give yourself a reality check and ask: ‘how much mortgage can I afford on my salary?’ before you start looking at properties way out of your affordability range.
As a rule of thumb, most lenders will consider lending you between three and four times your income. If you are buying a property with a partner, their income will also be taken into consideration and will either be added on to the total figure, or added to your income and the total figure multiplied by three or four.
However, this is a very loose calculation and the lending criterion is far more complex than simply taking your income and multiplying it by three or four. Mortgage lenders are extremely twitchy in the wake of the sub-prime mortgage collapse and the majority of lenders now tend to look at affordability as opposed to simple salary multipliers. These days, applying for a mortgage is rather like selling your soul to the devil: you pretty much have to sign your name in blood to get any cash out of the high street mortgage lenders.
How much can I afford on my salary?
In order to assess whether (or not) you can afford the mortgage you are asking for, mortgage lenders will want to scrutinize your bank statements and go over your credit history. If you are very careful with your money and are not one of life’s big spenders, you will probably be offered a bigger mortgage than if your credit cards are maxed out and you have personal loans all over the place, although if your credit history is really dubious, you might have difficulties finding a lender willing to offer you anything at all!
Another important consideration is the amount of deposit you will need in order to buy a property. Very few lenders will lend you 100% of the purchase cost, and some will only lend you 75% of the total cost, which means you need to have a decent sized deposit saved up prior to applying for a mortgage. If you have no savings whatsoever, or not enough, it might be worth asking family for financial assistance to give you a helping hand on to the property ladder. Otherwise the dream of owning your own home may need to be put on hold for a year or two.