If you're planning to move house, an essential first step to buying a property is working out how much you can borrow. Lenders determine the maximum amount they’re able to lend to a borrower by using a multiple of the borrower's salary. Specifically, most mainstream lenders use a multiple of 4 to 4.5 times the borrower's salary to determine how much they can lend, regardless of your job type. In this guide, we will tell you everything you need to know about income multiples, how a mortgage works with a 4 and 4.5 income multiple, what you need to apply for this kind of mortgage and how a specialist broker like John Charcol can help find the right product.

What Is a 4 - 4.5x Salary Mortgage?

A mortgage based on 4 - 4.5 times a salary (or income) is where the loan amount is capped at 4.5 times the borrower's annual salary (or annual income). This means that if you earn an annual salary of £50,000, the lender would be willing to lend up to £225,000 (4.5 x £50,000).

This is a common guideline used by many lenders in the UK when assessing a borrower's ability to repay the loan. Lenders use this calculation to work out the maximum loan amount based on the borrower's annual income. This is one way the lender ensures that the borrower will be able to afford the mortgage repayments, even if interest rates rise. Remember that lenders use an income multiple to work out the maximum amount they can consider lending to you – it doesn’t mean you will definitely be able to borrow that much as this depends on other factors.

Different lenders have their own policies and guidelines, so some may even be able to lend more than 4.5 times an individual's income. Whether they’re able to offer you more than 4.5 times your income will depend on their criteria, as well as your credit score, employment history and other factors. Some lenders may also consider other sources of income or assets when determining how much to lend, such as rental income or investments, which can increase the available mortgage amount.

Are Mortgages Always Based on 4 or 4.5 Times Salary?

No, mortgages in the UK are not always based on 4 - 4.5x salary or income. Some lenders may be able to lend at up to 5 or 6x your income and some may cap you below 4 depending on your circumstances. The income multiple that a lender uses to determine the maximum amount they can lend will vary depending on the lender and the borrower's circumstances. Lenders typically use multiple different methods to assess your affordability, including annual and monthly income, credit history, outstanding debts, the property's value, the size of your deposit and more.

You should have a look at your affordability before deciding whether you want to borrow 4.5 times your annual salary. Our range of mortgage calculators can help you determine the size of mortgage you can afford  and what your mortgage repayments will likely be.

What Affects Borrowing Limits?

Several factors can affect the amount a borrower can borrow from a mortgage lender, including:

  • Income - the lender will typically use a multiple of the borrower's income to determine how much they can lend. Most lenders will lend up to 4.5 times a borrower's salary. If you’re a particularly high earner, for example you earn over £75,000 a year, then the lender may be able to consider a higher income multiple
  • Deposit – if you have a particularly large deposit – e.g. 30% or more – the lender may be able to use a higher income multiple when working out your maximum borrowing
  • Credit history - a good credit history indicates a lower risk of default and may allow for higher borrowing limits
  • Outgoings and Expenses - lenders consider a borrower's other expenses and debts to ensure they can afford the mortgage repayments
  • Property value: the property's value is taken into account, as the lender will want to instruct a mortgage valuation for lending purposes to ensure that the loan amount does not exceed the property's value
  • Type of property - some lenders may limit the type of property they will lend on, for example they may reject non-standard construction properties
  • Income stability - lenders take into account the borrower's income stability, such as whether they have a permanent job or are newly self-employed
  • Age - some lenders may have an age limit for borrowers, typically around 75, which can reduce the mortgage term available to you and consequently your affordability
  • Property location - this can also affect the amount available to borrow, as some areas are considered more desirable or stable than others
  • Repayment type - the repayment plan the borrower chooses, such as interest-only or repayment, can also affect the amount they can borrow
  • Interest rates - current market conditions also play a role in determining the borrowing limit. As interest rates change over time, the loan's affordability will be affected

It's important to note that these factors are not always set in stone and each lender has their own unique lending criteria. It's always best to check with your mortgage broker about lenders and their specific requirements.

Which Mortgage Lenders Offer 4 And 4.5 Salary Multiples?

In the UK, several mainstream mortgage lenders offer mortgage multiples of 4 and 4.5 times a borrower's salary, including Nationwide Building Society, Barclays, Santander, HSBC and Halifax. As lending policies change over time, it's always best to check with your mortgage broker for the most updated information.

How Do 4.5 Times Salary Mortgages Work if You Are a Joint Applicant?

If you’re a joint mortgage applicant, the lender will calculate the maximum loan amount based on 4.5 times the combined income of both applicants.

For example, if both applicants have a combined annual salary of £100,000, the lender would calculate the maximum loan amount as £450,000 (4.5 x £100,000). This assumes that the lender has no other restriction on the loan amount and that the applicants can afford the mortgage payments based on their other expenses and debts.

How Much Deposit Do I Need for Mortgage Borrowing 4 - 4.5 Times Income?

The amount of deposit required for a 4.5 times income mortgage in the UK can vary depending on the lender and the specific loan program. However, a larger deposit will typically be required to qualify for a larger loan. Lenders typically require a minimum deposit of 5% to 10% of the property value.

For example, if you and your partner both earn £50,000 and your joint income is £100,000, the lender may be willing to lend you a maximum of £450,000 (4.5 x £100,000). However, if the property you want to buy is £450,000, the lender wouldn’t be able to lend to you at your maximum borrowing. Instead, they would likely require a 5% or 10% deposit which would be £22,500 or £45,000. In this circumstance, you would then borrow £422,500 or £405,000 respectively.

Government-Funded Help Towards Deposit

If you’re a first-time buyer, you may want to consider opening a LISA (Lifetime ISA). This is a bank account where the Government will contribute 25% of the amount you save towards a mortgage deposit, up to £1,000 a year.

Can I Get A 4.5x Salary Mortgage with Bad Credit?

It may be more difficult to obtain a mortgage at 4.5 times your income if you have bad credit. This is because a low credit score indicates a higher risk of default to the lender. However, it's not impossible. Some specialist bad credit mortgage lenders are willing to lend to borrowers with a lower credit score. Still, the terms, deposit requirements and interest rates may not be as favourable as those offered to borrowers with a good credit score.

Bad credit can include several factors, such as missed payments, defaults, CCJs, IVAs or bankruptcies, and each lender may have different criteria for bad credit. It's best to check with individual lenders to see their specific requirements and how they can help. It's also worth considering seeking the help of a mortgage broker, who can help you understand your options and find a lender willing to work with you, even if you have bad credit.

How Can I Improve My Chances of Approval for a 4.5x Salary Mortgage if I Have Bad Credit?

When applying for a mortgage with bad credit, it's important to be prepared for a more difficult and time-consuming process. Some additional steps you may need to take include:

  • Reviewing your credit report - before applying for a mortgage or remortgage, it's important to review your credit report to understand what factors affect your credit score. This will allow you to address any errors or outdated information dragging down your score
  • Improving your credit score - try to improve your credit score before applying for a mortgage. This may include paying off outstanding debts, paying on time, and keeping credit card balances low
  • Providing additional documentation - lenders may require additional documentation when lending to borrowers with bad credit. This may include proof of income, bank statements, and details of your debts and assets
  • Using specialist bad credit lender - specialist bad credit lenders may be more willing to lend to borrowers with a lower credit score, but the terms and interest rates may not be as favourable as those offered to borrowers with a good credit score. You will also need the help of a mortgage broker to access these kinds of lenders
  • Getting a joint borrower sole proprietor mortgage: A joint borrower sole proprietor mortgage is where a family member supports the mortgage application and acts a borrower, but they’re not added to the title deeds of the property. Joint borrower sole proprietor setups can help you borrow more than if you applied for a mortgage as a sole borrower because both your income and the income of the person supporting the application are used to work out affordability

It's important to remember that, even if you have bad credit, options are available to help you secure a mortgage. Finding the right lender and meeting their requirements may take some time and effort. A mortgage broker can help you navigate the process and find a lender willing to work with you.

Can Self-Employed People Get a 4.5x Income Multiple?

Self-employed borrowers are eligible for the same mortgage products – and therefore income multiples - as employed borrowers. The main difference to consider as a self-employed applicant is that you will be required to provide different documentation, such as financial statements and tax returns from 2 years to prove your income and the stability of your business.

It's always best to consult a broker with experience in self-employed mortgages to understand the specific requirements for the mortgage product you’re interested in and know what to expect.

What Income Multiples Are Available to First-Time Home Buyers?

First-time home buyers typically have access to the same income multiples as other borrowers. Typically, most lenders can consider lending up to 4.5 times a borrower's salary to first-time home buyers. However, some lenders may be willing to lend more, up to 5 times or even higher, in certain circumstances. These circumstances include:

  • A large deposit - borrowers with a large deposit may be able to borrow more, as a larger deposit reduces the lender's risk
  • A strong credit score - borrowers with a strong credit history indicate a lower risk of default
  • Other sources of income - borrowers with additional sources of income, such as rental income or bonuses, may be able to borrow more
  • A likely increase in future potential income – professionals such as lawyers and doctors may be able to borrow at higher income multiples due to their future earning potential

Summing Up

Borrowing 4.5 times your salary is the most common multiple lenders use to calculate your affordability and the loan size they will approve. They also consider other factors, such as your credit history, employment status and deposit size.

To find out more about qualifying for a mortgage of 4 - 4.5 times your income, contact our team of mortgage advisers at John Charcol. We’re on hand to guide you through the mortgage application process and maximise your borrowing power. Call us on 0330 433 2927 today.