Explaining the basics to someone just learning

missing_string

Hi,

I'm just dipping my toes in the water really, have been to see 2 independent financial people to discuss where I'm at and they both said mortgages could go up to 5 x salary for my circumstances.

Now, the way I understood it, was that you could afford a place that would be your deposit + salary x 5.

So for example, suppose a place was £150k, and your salary was £26k.

26 x 5 = £130k. You would therefore need a £20k deposit.

Is this right?

monty-doggy

It's just up to 5 x salary. Deposit is irrelevant.

The bigger the deposit generally lower interest rate so more affordable.

It's confusing how you wrote it but the max you can borrow is 5 x salary and deposit would be the difference between sale price and loan amount.

missing_string

Ah, so looks like my suspicions were correct. Thanks for your swift reply.

gazter

missing_string wrote: »

Ah, so looks like my suspicions were correct. Thanks for your swift reply.

5x salary isnt the whole story though. Any debts and commitments you have are essentially deducted.

For example, lets say you have a salary of £30,000. 5x £30k is £150k.

However, you have a couple of years left to run of a car loan at £100 a month, you have a pension scheme at work that you put 5% of your salary into, thats another £125 a month, you might also have a student loan payment of £100 a month.

So, say you do have these commitments of £325 a month, multiply them by 12 = £3,900.

You essentially deduct that £3,900 from your £30,000, it becomes £26,100.

£26.1k *5 that jumps down to £130,500.

Different lenders are fussy about different things...

ACG

I tend to work to 4x income to be on the safe side. Lenders can and do say you can borrow upto £xxx amount but when it comes to underwriting they can pick out things that you would never have would cause a problem. So i tend to leave a bit of room for maneuver and work to 4x but let the clients known there should be some room to go higher if needs be.

Dave_Ham

Note of caution that not many lenders offer 5 * income multiples and as stated this is net of financial commitments and dependents and the remaining term available typically based upon age.

I find it startling that you have seen 2 financial professionals already and this has not been clarified to a level you understand..

All the best