Income multiple flexibility

Lotak

Hi guys,

I know that maximum loan size is based on a multiple of income, usually between 4 and 5x income.
For any one bank, are they allowed to tier their income multiple based on actual income?

As an example:
income between £20-40k, max loan size is 4.0x income. Between £40-60k, max loan size is 4.2x income. Above £60k max loan size is 4.5x income.

This is total income, so at £39k, you can borrow £156k and at £50k you can borrow £210k?

I ask because one IFA I spoke with said this is the case, and another IFA I spoke with said this isn't the case, so I'm a bit confused.

getmore4less

What you spend is often more significant than the earnings.

Lotak

getmore4less wrote: »

What you spend is often more significant than the earnings.

I know that, but this is a theoretical case whereby expenditure is low, such that a borrower can afford the maximum loan size

ACG

Some lenders will lend say 4x income if your income is below £25k, 4.5x income if it is say £25-60k and 5x if more than £60k (not exact figures) but you get the idea.

But in the main it is just affordability based, those are just caps they have in place. Some lenders have no caps as such and it is just affordability based, we have heard of 7x income, I think the highest we have done is 5.8x income since the caps came in.

kingstreet

Loan to income caps often apply from loan to value change points as well.

I've just done some calculations on a NatWest mortgage and the lending topped-out at 4.5x at 85% regardless of how much they earned.

Removing credit commitments and increasing the mortgage term made no difference.

Some lenders are also lending more where a five year fixed rate is being taken, compared to a shorter product.

Income multiple and income level cannot be looked at in isolation.

Lotak

ACG wrote: »

Some lenders will lend say 4x income if your income is below £25k, 4.5x income if it is say £25-60k and 5x if more than £60k (not exact figures) but you get the idea.

But in the main it is just affordability based, those are just caps they have in place. Some lenders have no caps as such and it is just affordability based, we have heard of 7x income, I think the highest we have done is 5.8x income since the caps came in.

Thank you! That was what I was looking for.

Initially I thought that lenders could only lend a flat income multiple irrespective of income, but you've confirmed otherwise.

Of course I appreciate the numbers you've given are illustrative only.

getmore4less

Lotak wrote: »

I know that, but this is a theoretical case whereby expenditure is low, such that a borrower can afford the maximum loan size

Then it is fairly obvious that someone that spends £15k earn 25k will have much lower affordability than the same spender on £50k, the later can put an affordability case that has a higher relative payment which can lead to a higher multiple.

Also less likely to be hit buy a stress test reduction.

amnblog

I had a case two years ago where the Client was earning £58,000.

In the middle of the application he got a pay rise to £61,000.

This dropped his affordability as the Lender considers +£60K earners will spend more than sub £60K earners.

Sometimes, you couldn't make it up.