Income Multiples - Method for calculating mortgage allotment
The income multiple is the calculation used when allotting a mortgage amount. Income multiples can be used as a guide by a consumer to see how much a mortgage lender or mortgage broker will be prepared to advance them on a mortgage which they can then use as a guide to find properties that fall in their price range. As a very rough rule the maximum amount normally available to a consumer to borrow to use to purchase property will be three times their annual salary. Alternatively, it tends to also be two and a half times the joint income if buying property with a spouse or partner. The income multiple rule is not set in stone, there could be occasions when more will be lent at the discretion of the mortgage lender.
Income Multiples Example - UK Mortgage
The first step towards purchasing and becoming a home owner is to find out how much can be borrowed for a UK mortgage. This is worked out according to the customers income and uses income multiples. Although there are 100% mortgage products available these are considerably more expensive, due to the interest on the larger amount lent as well as increased fees and charges. 100% mortgages are typically used by the first time buyer.
The second step to being a home owner is the deposit , the majority of UK mortgage brokers offer mortgages up to 95% of the value of the property, therefore a deposit is needed of at least 5% of the price.
The third step is to find a property to purchase, whether the consumer decides to use an estate agent or proceed alone the property needs to be in the customers price range.
The fourth step is to formally to make an offer on the property and this is done using solicitors acting for both parties.
The fifth step involves the exchange of contracts for the property and the consumer then becoming the home owner.
Income Multiple Information
The income multiple rule may be useful for the consumer as a guide but it will tell people little about how much they can actually afford to repay. The reason is because mortgage rates are the key factor in determining the affordability of property. The lower the interest rate the less a given mortgage is going to cost but if interest rates rise the actual cost each month will also rise. Consumers should bare this in mind when arranging any mortgage.