Income Multiples

Your 'income multiple' is used as a guide to how much a lender will be prepared to advance you on a mortgage. As a very rough rule of thumb the maximum amount you are normally able to borrow to purchase a property will be three times your annual salary. However, multiples of up to 4 times income are not uncommon. Alternatively, it tends to be 2.5 times your 'joint income' if you are buying with a partner.

As an individual, this would mean on a salary of £25,000, you could expect to raise a mortgage of £75,000. As a couple, with one earning £25,000 and the other £20,000, you would be able to borrow up to £112,500.

The above is not set in stone. There will be occasions when you'll be lent more.

The 'income multiple' rule of thumb may be useful for the lender as a guide but it will tell you little about how much you can actually afford to repay. This is because mortgage rates are a key factor in determining the affordability of houses. The lower the rate the less a given mortgage is going to cost you but if interest rates rise the actual cost to you each month will also rise.

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Last Updated: August 2007 © Moneyextra.com

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.