How much salary to borrow?
February 29th, 2008 | by admin |Before taking out a mortgage it is important to know how much you can and should borrow. With the ratio of house price to incomes at an all time high, it is tempting to borrow to the hilt in order to get a mortgage for the house.
3 Times Salary. The traditional model of mortgage lending was a simple income multiple of 3 times salary. With current long term interest rates at a low level, this would provide a mortgage that is quite affordable for the average homeowner.
4 Times Salary. An increasing number of high street banks are offering mortgages upto 4 times salary. Mortgage lenders that will lend 4 times salary include:
- HSBC
- Halifax
- Nationwide. The more you earn, the higher income multiple which will be lent. For example, if your income is £20,000, they will lend £76,000. If your income is £30,000, they will lend £120,000. If your income is £50,000, they will lend £215,000
5 Times Salary Mortgages
According to the Halifax mortgage calculator. They would lend £150,000 to someone on a £30,000 income. However, this requires having no outstanding credit card debts and no children. Also, it is just a guide
The key here is the issue of affordability. If you have low monthly outgoings, the payments on a 5 times mortgage multiple can be affordable, if you have credit card payments and high outgoings, it can become too expensive.
Future of interest Rates
A key factor when deciding how much salary to borrow is the future of interest rates. For 2008 and 2009, interest rates are likely to remain low. It is hard to see interest rates rising significantly.
