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Mortgage Based on 6/7 Times Salary
- Maximise Your Borrowing
- Minimise Your Repayments
- Manage Your Mortgage Down
- Handled With Humanity
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Mortgage Based on 6/7 Times Salary
Richard Campo talks all about mortgages based on six or seven times salary.
Can you get a mortgage based on 6 or 7 times your salary?
Yes.That probably needs a bit of qualification – and to be blunt, this is really driven by income. In mortgages, the more you earn, the more you can borrow. It’s not just more because your income is higher but also the multiple is more.
I’ll give you a really simple example. If your income were £50,000, most banks in the UK would offer you four and a half times your income. But once you get to £150,000 and more, most banks give you five and a half times your income or more.
Probably the biggest thing on this, and why it’s more designed for high net worth clients, is what’s deemed as income. We’ll expand on this, but it might include, how your bonus is looked at? Do you have a vesting stock schedule? Do you have carry in some investments? Do you have other investments? Do you have non-UK income? Do you run a company and not pull out all the profit? If any of those things mean something to you, they’re things we’re going to expand on as we go.
How does it work if you are classed as a high net worth individual?
There’s a specific high net worth definition by the Financial Conduct Authority, so if either your income is £300,000 or you have £3 million worth of net assets then you are a high worth individual and the usual rules don’t apply.
This is typical in the private banking space, where banks look far more widely at you as an individual – what you can afford, what your capacity is. It’s often not a straight multiple of your income in that world.
You can actually get very high multiples of your income – because theoretically you can have no income whatsoever but a very large asset base. In that case banks can monetise assets. Let’s say you’ve got a £1 million pound share portfolio, and even if you don’t draw the interest off it, some banks might assume a return of say 5%. That means you’ve now got a £50,000 income a year.
Also if you have good assets, some private banks and small building societies will front load interest. If you had the ability to put five years worth of interest payments in an escrow account with them, for example, they can let that work down over a five-year period.
If you don’t tick the high net worth rules, like 95% of people in the UK, but you’re a higher earner, you might have a more complex income. We’re generally talking about people who earn £100,000 to £300,000, and we often find they have what’s called a vesting stock schedule. You might work for a company, typically the big banks and tech firms, where rather than give you a £100,000 bonus they give you £100,000 worth of stocks. That has a vesting schedule, so those shares can’t be liquidated for say a three-year period.
You could be three or four years down the line and have a big asset pool to draw on, but because that wasn’t physically paid through your payslip 99% of the high street lenders won’t consider it as income.
This is where you get to the six or seven times income bit. A bank might look at your basic salary of £100,000 and lend you £700,000 because you’ve got a vesting stock schedule – as you’ve got the capacity for more earning or to pay the loan down more quickly.
It’s similar in the private equity world. At the partner level they put their own money in investments as well as the actual fund itself. So you could be sitting on quite a lot of assets that will realise over the next five or ten years. Again banks might push the boundaries for you here.
Probably the biggest one we get for bigger multiples is around limited company owners. You might be quite prudent – say your company made say a £300,000 profit in the last year but you’ve only drawn £100,000 of income from it. Most banks again would only include your income at £100,000 but others will look at your actual total income as £300,000 even though it isn’t drawn.
Again, if any of those things mean something to you, please do talk to us. We can talk you through it more specifically about your situation.
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What if you don’t have a high net worth exemption?
I mentioned limited company directors, and that also includes contractors. Contractors can earn great sums of money and the good news is that most banks don’t look at your limited company, they instead look at your day rate. What they typically do is take your day rate and multiply that by five if you work full-time, over a 46 week year – that’s the income the bank will work on.
It’s irrespective of the profit your company makes – you probably want to keep your profits down. If you’re a more traditional limited company director like myself, running a trading business, there’s a key part on your accounts called ‘profit on ordinary activities before tax’. It’s not your net profit necessarily, it’s more about the profitability of a business. A few banks look at that, which means they don’t look at salary and dividends etc.
A lot of limited company directors have good income, but it’s complex. You’re not a high net worth individual but you still have a really good income. These are the sort of clients we love to help.
Banks really will push the boundaries if you’re doing a like for like remortgage. Let’s say your mortgage is up for renewal in May and you’re looking around for options. Perhaps your income is down or maybe your partner isn’t working now, for whatever reason. Some banks standardly go to six times for that and some will go higher as long as you can evidence that it’s affordable and you haven’t got lots of debts in the background.
How many lenders will offer a mortgage based on six/seven times my salary?
No one publicises this, so it’s hard to get that information. But to give you some broad tiers to work to, most lenders in the UK will give you about four and a half times your income, no matter what you earn. Once you earn £75,000 most banks will offer you about five times your income and once you get £100,000 some banks will go to five and a half sometimes even six.
The key point around income is also affordability. The reason why some people can push the boundaries on what they can borrow will be some of the things I touched on. You might have additional income or other bits the banks can take into consideration. You might have assets as we touched on. But what’s equally important is your lifestyle and your outgoings. Banks don’t look at whether you have a big night out sometimes, what they care about are direct debits, childcare costs and debts. These things are really important.
You can have two clients with exactly the same income and occupation but borrow wildly different amounts. We’re recording this in March 2023 in the middle of an affordability squeeze. I’ve got two young children and we live in a big house – it’s expensive enough just to heat it these days. So I’ve got really considerable outgoings. Someone else might earn exactly the same amount as me but could borrow maybe double because my lifestyle costs are higher.
Debts are factored in quite heavily at the moment because the base rate has gone from under 1% to 4% in less than a year which happened faster than anyone expected. So banks do stress tests in the background. Everything could be affordable now, but a bank will always take the worst case scenario.
So if you’ve got credit cards and loans and quite considerable outgoings it will hamper how much you can borrow – unless you have other assets or other income. Affordability is absolutely everything in this space.
How can a mortgage broker like Rose Capital help?
It’s really about understanding the language of our clients and the makeup of their compensation or their income.
More affluent clients are really successful, busy people. Do you want to spend days going up and down the high street? And even getting no’s from banks that you know should lend to you?
In this space it’s far better to work with a professional. If you want legal advice you go to a solicitor, if you want tax advice you go to an accountant, so if you want mortgage advice come to a broker.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Useful Links
- Self Employed Mortgages
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- Contractor Mortgages
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- Company Director Mortgages
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- High Net Worth Mortgages
- Mortgages for Expats and Foreign Nationals