When you’re trying to buy your dream home, the most vital question that pops up is: How much do you have to earn to get a mortgage for the size or type of property you are considering?
With current market prices, and financial pressures on household budgets, buying any property without a little help can sometimes feel almost impossible.
That’s why we’ll break down the income requirements for mortgages in the UK, helping you understand what mortgage lenders look for to improve your chances of securing the loan you need.
Getting A Mortgage: A Quick Overview For The First Timer
It’s best to learn the basics before getting into the more intricate details of getting a mortgage and what you need for it. Here are a few definitions that’ll help make this guide make more sense.
- Mortgage: In simpler terms, a mortgage is a loan specifically for buying a property. You borrow a certain sum from a lender and repay it over time, with interest.
- Down Payment/Deposit Amount: This is the initial amount of money you can pay the lender upfront for your property. When you pay a large payment upfront, it can lower the future monthly payments.
- Interest Rate: You can consider this the cost of borrowing the money, but expressed as a percentage. It affects how much you’ll pay over the life of the loan.
- Mortgage Term: This is how long you’ll take to repay the loan. Typically, it could be a term of around 20–30 years in the UK.
- Loan-to-Value (LTV) Ratio: This is the amount you’re borrowing compared to the property’s value. 80% ratio is the threshold most lenders prefer for a standard mortgage. Anything higher comes with less favourable terms.
- Affordability Assessment: This is what the lenders do to check if you can afford the mortgage payments, by considering your income and expenses.
You’ll notice a few more terms as we go on, but the above are the basics you need to know. Next, we can ask the question: How much do you have to earn to get a mortgage?
What You Need To Successfully Secure A Mortgage
There’s no one-size-fits-all answer regarding how much you need to earn to get your dream mortgage.
It depends on several factors, including the property’s price, your credit score, and the deposit size.
Generally, lenders want to ensure you can pay the monthly payments comfortably without overly straining your finances. So, they focus on two main factors before they lend you the money:
- Your Annual Income
Lenders aim to give out loans that can be successfully repaid. Typically they allow borrowers to borrow an amount around 4 or 4.5 times their annual salary (or joint annual salary if joint applicants). This number can be stretched, but only under special circumstances.
Here’s a quick outline of possible mortgages you could possibly take out based on your annual income and the multiplier:
| Income | X 4 | X 4.5 | X 5 | X 5.5 | X 6 |
| £20,000 | £80,000 | £90,000 | £100,000 | £110,000 | £120,000 |
| £30,000 | £120,000 | £135,000 | £150,000 | £165,000 | £180,000 |
| £40,000 | £160,000 | £180,000 | £200,000 | £220,000 | £240,000 |
| £50,000 | £200,000 | £225,000 | £250,000 | £275,000 | £300,000 |
| £60,000 | £240,000 | £270,000 | £300,000 | £330,000 | £360,000 |
| £70,000 | £280,000 | £315,000 | £350,000 | £385,000 | £420,000 |
Please note that these numbers are just approximations and you should consult a professional first.
- Income-To-Debt Ratio
Lenders always look at your income-to-debt ratio (DTI), which compares your monthly debt payments to your gross monthly income. This ratio is one of the main factors affecting the first point.
Most lenders prefer a DTI ratio of 39% or lower, though some may accept higher ratios depending on your overall financial profile. To calculate your DTI, follow these steps:
- Write down all your monthly bills. This can include rent, credit card payments, any type of loan, and any other recurring debt obligations.
- Add up all your monthly payments and divide the total by your gross monthly income—without tax deductions.
- Now multiply the answer you get by a hundred and you’ll have the percentage of your DTI ratio. The lower it is, the less risky you are to lenders.
For example, if your monthly debt payments are around £1000 and your gross income is £3,000, your DTI ratio would be:
DTI = (10003000) 100 = 33.333%. Most lenders would think this ratio acceptable. Had it been over 39%, you’d have trouble getting your mortgage.
Other Vital Factors Affecting Mortgage Approval
Your income and DTI ratio aren’t the only things lenders consider, of course. In fact, other factors could decrease your approval chances, including:
Credit Score
Despite the lenders looking at your DTI ratio, your credit score still plays a significant role in mortgage approval. How so, you might wonder?
Your credit score is like a financial report card, showing how well you’ve managed your credit in the past. That’s to say, a higher credit score indicates to lenders that you’re a trustworthy and reliable borrower.
This can mean better interest rates and loan terms! On the other hand, if your score is lower, it can signal the lenders that you’re a risk, potentially leaving you with higher interest rates or maybe application denial. In a way, your DTI ratio and credit score are connected.
Down Payment
Also called the deposit amount, the down payment is the amount you pay upfront to the lender. The bigger it is, the better! This is because you’ll be giving the lender a bigger safety net, which in turn allows for various benefits.
For instance, a larger down payment means you borrow less from the lender. To illustrate, if you’re buying a £200,000 home and put down 20% (around £40,000), you only need a mortgage for the £160,000.
The smaller the amount you need to borrow, the easier to qualify. Also, a substantial down payment often means you can secure better interest rates and loan terms. This can save you thousands over the mortgage term.
Employment Status and History
There’s so much to be said about employment, as it can significantly affect how lenders see you. To start, ask yourself this: Would you lend money to someone who constantly jumps from job to job and can’t hold one down consistently?
If your answer is no, then you understand exactly how vital this aspect is to the lenders. It makes sense that the lenders prefer borrowers with stables and consistent employment because, in a way, it guarantees this person’s reliability.
When you have a steady job history, it indicates a steady income, which is necessary to make payments.
If you’ve changed jobs recently, it won’t make much of a difference as long as it’s in the same field. This can show that you have transferable skills and can maintain a steady income despite job changes.
However, shifting your career and starting from scratch wouldn’t look too good on paper unless you have at least two years of experience in your new field.
Types of Income Considered by Lenders
Some people earn money through full-time jobs, others through freelancing, and a few through investments, where their income can be a little less certain. The question here is: Do the lenders have a preference? Here’s what we can tell you:
Salary and Wages
The most straightforward and reliable sources of income lenders prefer are salaries and wages. As mentioned, these are stable sources for lenders, indicating a regular cash flow.
In such a situation, all you have to do typically is provide the lender with payslips, employment contracts, and probably bank statements to confirm your status. There’s a chance your employer will be contacted to confirm all the information you provided.
Also, while you may have a stable salary, there’s a difference between full-time and part-time. Naturally, full-time applicants are viewed more favourably than part-timers.
Self-Employed Income
If you’re self-employed and applying for a mortgage, you may find yourself having to dig deep to provide extensive documentation to verify almost everything!
This can include tax returns, business accounts, and financial statements for the past few years. All these papers help show the lenders how disciplined you are without a supervisor overhead and how stable your income is.
Bonuses and Commissions
Bonuses and commissions can be considered variable income, and they can impact your total income greatly. Lenders will consider them, but they often prefer to see a history of consistent bonuses or commissions over years, not just months.
This can help them average your bonus or commission over time and assess its reliability. They might also contact your employer regarding the likelihood of future bonuses and commissions, adding weight to these income sources.
Rental Income
Another income lenders can consider is rental income. In short, if you own rental properties, the revenue generated from these can be included in your mortgage application.
You’ll need to provide rental agreements, bank statements showing rental payments, and tax returns that include rental income. Some lenders might also require proof of ownership and property valuation reports.
Sadly, you should know that not all lenders will accept rental income when calculating how much you can take. To find a lender who will approve of this, you might need a professional broker to help you.
Investment Income
If you have investments in stocks, shares, or earnings from funds, you can certainly use those to boost your application. Generally, all you’ll need to provide is a couple of papers, such as bank statements, dividends statements, interest statements, tax returns and the like based on your investments.
The lenders prefer documentation to go back at least two years to prove stability and reliability. Also, similar to the rental income, not all brokers consider this a primary income source like wages or salaries.
Joint Mortgages Applications
Applying for a mortgage on your own means multiplying your annual income by at least four and borrowing that money. However, what if your dream home costs more than that?
Well, you can apply for a mortgage with another person, whether a partner, friend, or family member.
One of the most significant benefits of a joint mortgage application is the ability to combine your incomes, resulting in a higher borrowing limit!
For example, if you earn around £25,000 and the other person earns £35,000, the combined income would total up to £60,000.
This can qualify you for a mortgage of at least £240,000! This is a huge step forward, compared to the £100,000 you would’ve gotten with your own single salary.
Moreover, the combined application can make the financial responsibility lighter, as both of you share to meet the monthly payments.
The problem with joint mortgages, though, is that everything the lenders search for will now be in twos. They’ll have to go through your credit scores, employment history, salary stability, and DTI ratios.
If one of you has an inadequate report sheet in one of the above points, it’ll negatively affect the application.
It’s also important to consult with a legal professional to understand the implications of a joint mortgage and discuss an exit strategy in case one of the parties wants to move out.
How To Increase Your Chances of Mortgage Approval
As you might’ve guessed so far, getting your mortgage approval is a difficult process that requires loads of documentation and various steps to take.
Yet, there are a couple of valuable tips that can help strengthen your mortgage application:
Work on Your Credit Score
A low credit score can truly hinder your plans of getting a mortgage. So, your first course of action should be improving it.
To do this, start by regularly reviewing your credit report for errors or inaccuracies. If anything’s amiss, dispute it to ensure your score accurately reflects your credit history.
You should also focus on reducing your outstanding debts, especially the ones with high interest. This can also help with the DTI ratio!
Another thing you must do is consistently pay all your bills on time, as late payments can negatively affect the score. You can set up automatic payments to stay on track and hopefully increase your credit score.
Lower Your Debt-To-Income Ratio
Just as a low credit score can significantly bump your plans, a high DTI ratio can do the same. That’s why we need to start by paying off the small debts to reduce the overall debt burden.
You should also avoid any new debts before getting a mortgage, as this is just a step in the opposite direction! Be it car loans, personal loans, or additional credit card debt, it can negatively affect you.
Diversify Your Income
If you want your application to stand out, try diversifying your income stream and strengthening your financial profile.
Start by building a robust savings account that would show reliability to the lender. You should aim for at least three to six months of living expenses saved in an emergency fund.
For your next step, try to invest more in a mix of stocks, bonds, or mutual funds! These can be seen as an additional income to your primary one, boosting your application.
If you don’t want to invest, work part-time or take freelancing gigs to increase your income. This can show the lenders you have multiple income streams, which can be seen as a positive factor in your application.
To Sum Up
Unfortunately, there isn’t a clear answer for how much do you have to earn to get a mortgage, although the mortgage multiplier can give you some indication and is useful as a guide. Ideally, what you need is a decent credit score, a low DTI ratio, a sizable downpayment, and a solid employment history.
Once you have all these points figured out, your mortgage application shouldn’t be too difficult to get approved. Yet, always remember, that lenders look at the whole picture, not just one or two factors.
If you still have any inquiries, feel free to reach out to us—we’d be happy to help!