How much do I need to earn to get a mortgage?

If you're a first time buyer hoping to get on the property ladder, you may have questions about how to get a mortgage application approved.

What's the best mortgage offer for you? How do affordability assessments work? What exactly is the affordability criteria?

And above all, how much do you need to earn to get a mortgage?

In this article we'll take you through everything you need to know about mortgage affordability and what you can do to improve your chances of getting a mortgage approved.

What is a mortgage?

Lenders will offer mortgages for those who require funds to purchase a property.

A mortgage is a loan used to purchase a property or land. As the borrower, you'll repay the lender over time through regular payments, with interest. The property is used as collateral to secure the loan.

There are a lot of different mortgage types and rates available, including fixed rate and adjustable rate. Which mortgage you'll be approved for will depend on your own affordability.

The mortgage amount will depend on the type of loan, the mortgage term, and the interest rate charged by the lender.

What will a mortgage lender look for?

When assessing mortgage applications, lenders will focus on three main factors.

Your household income

Lenders will look at recent bank statements to assess your household income. This includes your annual earnings, as well as any other sources of additional income such as financial support, pension payments and assets.

Your outgoings

Your outgoings will include any loan or credit card payments that may affect how much you can borrow for a mortgage. They'll have a credit report as part of the investigation.

They'll also look at other factors like bills, travel and food.

Monthly repayments

Your fixed rate is usually only offered for a limited mortgage term, so lenders often check if moving to a higher interest rate would affect your ability to make your mortgage repayments. So make sure you're looking to the future as well as the now.

Mortgage lenders will also look at the size of the deposit, any extra sources of income, savings, credit history, living costs and the type of property you want to purchase.

How much do I need to earn to get a mortgage?

There isn't a minimum annual income you need to earn to get a mortgage application approved. It really depends on the lender.

Most lenders will assess the situation on a case by case basis, though some may have certain limits and conditions before they approve your application.

If you're unsure, it's always better to seek advice from a mortgage broker so you're aware of all your options. Mortgage brokers will know which mortgage deal is best suited to you.

You can also check your mortgage eligibility by applying for an agreement in principle.

Mortgage calculators

You can use a mortgage calculator to quickly calculate how much you can borrow based on your income. There are plenty of different mortgage calculators online from various lenders.

Getting a mortgage on a low income

You might be thinking that you won't be able to borrow for a mortgage if you're on a low income. But this isn't always the case. In fact, a lot of mortgage providers offer mortgages to those on a low income.

However, how much income you earn will have an impact on how much mortgage lenders decide to loan you. They need assurance you'll be able to make the monthly payments.

A lot of mortgage lenders will take other factors into account. For example, you may have a lower than average income but a big deposit from inheritance. In this instance, you may be eligible for a higher mortgage amount.

Here some other ways you may get mortgage approval on a lower income:

Raise your credit score: As part of the affordability assessment, your mortgage lender will check your credit rating. If you have a low credit score, this could impact your affordability as it shows you're not super trustworthy as a borrower.

Having a higher credit score will assure lenders you're a safe applicant and so they'll be more likely to accept your application.

Save up for a bigger deposit: As we mentioned earlier, if you have a bigger deposit lenders are more open to providing mortgage funds. With a bigger deposit comes a lower amount to borrow, which in turn means lower monthly repayments.

Lower your outgoings: This comes hand in hand with saving. Lenders are looking at your monthly outgoings, so the less you spend, the more money you'll have to make your monthly repayments.

Reduce your debts: Reducing your debts will also lower your monthly outgoings and open up more funding to make the monthly payment.

Joint mortgages

A joint mortgage is another way those with a lower income can get a mortgage application approved. Applying together means the lender will offer a mortgage based on your combined income, which means you'll be able to borrow more.

Of course, it's important you trust the other person to be financially secure in making the monthly repayments as you'd both be responsible for them.

Government schemes

There are also a lot of different government schemes aimed to help first time buyers.

Shared ownership: Through a shared ownership scheme, you can buy a share of a home through a mortgage. You'll then rent the rest at a lower rate from the government, or a housing association.

You can learn more about shared ownership schemes here.

Help to Buy Equity Loans: The type of home loan is for first time buyers looking to buy a new build home. They can borrow 20% of the home value as a loan from the government, and this loan is interest-free for the first five years.

Read more about help to buy loans here.

How do lenders work out how much you can borrow?

The mortgage income multiple metric is often used as a guidance by lenders to assess how much you can borrow for a mortgage - but remember income isn't the only factor they'll consider.

Affordability criteria will vary from lender to lender, but most mortgage lenders will let you borrow up to 4.5 times your annual salary. The mortgage industry only allows lenders to offer a higher multiple than 4.5 to 15% applications per quarter.

If you want a mortgage rate calculated at 5, 5.5 or sometimes even 6 times your income, there's some criteria you'll have to meet.

You'll need to tick one of these boxes:

• If you're a lower earner, you may be able to access higher income multiples if you're in a certain profession such as a doctor, lawyer or police officer.
• You have a deposit of 25% or more.
• You're a high-net-worth buyer earning over £50,000.

How a broker can help you secure a mortgage loan

Mortgage brokers can help you find the right mortgage, especially if your main goal is to borrow the largest loan possible for your income.

They can find lenders that will take your additional sources of income into account, with the most flexibility on loan term lengths.

They also find lenders with the best interest rate for your situation. If the interest rate rises, this will increase your monthly payments, so it's important to get a loan that will suit your circumstances comfortably.

Not only that, they'll be able to give you expert advice on how to improve your credit record if you're struggling with your credit history, as well as organise your finances to increase your expendable income.

They'll know everything about possible government schemes you may be eligible for and give you advice on how to maximise your borrowing.

Applying for a mortgage when you're self employed

If you're self-employed, there isn't a specific type of mortgage you need to apply for; it'll be the same kind as everyone else. However, you might be wondering how you can prove your household income if you're self-employed.

In this instance, you'll have to provide more evidence that you have a reliable income in order to show you can make the mortgage repayments.

A self-certification mortgage loan used to exist for those who were self employed. They let you declare your household income without proof. However, they have since been banned because of concerns that applicants were being approved for mortgages they couldn't afford. Without property affordability assessments, it was near impossible for lenders to guarantee a risk-free mortgage.

However, though it can be more challenging to get a mortgage as a self employed person, it isn't impossible. Here are some of the ways you can get approved.

Mortgage rates for self employed applications

You shouldn't have to pay higher mortgage rates or interest rates just because you're self-employed.

So long as you can provide proof of household income to show you can afford the repayments, lenders will have no qualms about providing the funds with similar income multiples and a similar mortgage term to those who are salaried.

As with regular mortgages, your interest rates will depend on how large your deposit is, as well as your credit score.

Documents needed for a self employed mortgage

Before lenders approve the mortgage loan, you'll need to provide proof of identity with a passport or driving licence as well as recent utility bills for proof of address.

You'll also need to provide recent bank statements (for the previous three to six months) so lenders can get a clearer picture of your spending habits.

You'll also need to provide evidence of the deposit money if this isn't verified by your bank statements.

These are all requirements of a normal mortgage. However, if you're self employed you'll need to provide extra documentation to pass the affordability assessment.

You'll need to give evidence of two or more years of certified accounts (usually prepared by a qualified accountant). You may also need a SA302 form or a tax year overview from HMRC for the last two to three years.

You might need to provide evidence of upcoming contracts or income from your business accounts if you're a contractor to prove you have income coming in.

Speak to an expert mortgage broker

If you have any questions, it's really important to discuss with a mortgage broker who will be able to advise you on the best mortgage to apply for and increase your chances of approval.

Level of security

Most lenders decide how much they are willing to offer and the interest rate of that offer based on the risk they make in lending to you. So, the more security you're able to give them, the lower the risk of your borrowing, which means the lender will be more willing to offer a higher mortgage.

Higher deposits: If you can offer a higher deposit, you'll have a lower loan to value ratio. A loan to value ratio is the percentage of borrowing you take out against your home. For example, if you have a £160,000 mortgage on a £200,000 house, the loan to value ratio is 80%.

This means they'll have access to a higher income multiple and the best interest rates. you can get a mortgage on as little as a 5% deposit, but that means your interest rate will be a lot higher, and you won't be able to borrow as much money even if you have a higher household income.

Extra assets and income: If you already own other homes or have assets of a similar value, some lenders might consider this as a way to add to your deposit, or even to act as your deposit if it has enough value.

Summary: It's all in the income!

Ultimately, how much you can borrow depends on how big a risk your lender is making. Those on higher incomes get higher income multiples; those with higher deposits or assets of significant value may also make you eligible for a lower mortgage rate.

You can use a mortgage calculator to determine the amount you'll get from most lenders.

Mortgage lenders will always need to know the value of a property to determine your loan amount - they need to know if the property is worth the value of the mortgage. For an instant property valuation, check out our Online Valuation Tool today!