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23 Apr 2022

Lenders tighten mortgage lending rules - how much can you borrow with your salary?

HSBC and Nationwide have increased the minimum income borrowers need to get a bigger mortgage

Homebuyers in search of bigger mortgages may face stricter borrowing rules, at a time when house prices are soaring.

Two of the UK's biggest lenders have increased the minimum salary requirements on mortgages offering above four-and-a-half times the applicant's salary.

Here, Which? explains how much you might be able to borrow when applying for a mortgage and offers advice on which lenders offer the biggest home loans.

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Lenders demand higher salaries from mortgage applicants

Two of the UK's biggest mortgage lenders have tightened their criteria for applicants looking to take out larger loans.

HSBC now requires borrowers who apply for a mortgage at 4.75 times their annual income to earn at least £50,000 a year, up from £40,000. Those who earn less will be limited to a maximum of 4.49 times their income.

The move comes after Nationwide increased the minimum salary required to apply for its 'Helping Hand' mortgage range, which offers loans at up to five-and-a-half times income.

Single applicants now need to earn £37,000 (up from £31,000) and couples need to earn £55,000 (up from £50,000).

How much can you borrow when taking out a mortgage?

Most banks will allow you to borrow up to four-and-a-half times your salary when taking out a mortgage.

As an example, if you're buying a property with your partner and you collectively earn £50,000, you should be able to borrow around £225,000

Lenders are only allowed to offer 15% of their new mortgages at or above four-and-a-half times income, due to rules set by the Bank of England.

The Bank reviewed these limits last year and decided to keep them in place. It is, however, planning to remove a separate rule that states borrowers must be able to afford a three percentage point increase in their mortgage rate.

Find out more: mortgage borrowing calculator

Do any lenders offer higher borrowing limits?

If you have a deposit of 25% or more, you might be able to borrow a little more, with some lenders setting maximum limits of five times income for buyers with bigger deposits.

A handful of lenders offer even higher multiples of five-and-a-half times income, but tend to be limited to borrowers with higher earnings.

Nationwide is the only lender to offer a high income multiple to applicants with a 5% deposit, under its Helping Hand mortgage range.

Lenders offering five-and-a-half times annual income

LenderMaximum income multipleMinimum annaul earningsMaximim loan-to-value
Nationwide5.5£37,000 (individual), £55,000 (joint)95%
Atom Bank5.5£60,00190%
Barclays5.5£75,000 (individual), £100,000 (joint)85%
Santander5.5£100,00060%

Source: Moneyfacts, 21 April 2021.

Many banks don't disclose their maximum income multiples publicly. With this in mind, you might find it useful to speak to a whole-of-market mortgage broker to get the inside track on which lenders might offer you a bigger mortgage. 

How do 'professional' mortgages work?

Some lenders offer higher income multiples to applicants with specific jobs.

'Professional' mortgagess are designed for applicants who have recently qualified in industries where the lender believes they will benefit from significant wage growth in the coming years.

Platform (part of Co-operative Bank) offers up to five-and-a-half times income for applicants who've recently qualified in roles such as accountants, actuaries, barristers, dentists and doctors. Applicants usually need to be registered with specific professional bodies to qualify. Metro Bank offers a similar deal.

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How to borrow seven times your income

In December, the online mortgage broker Habito launched its new 'One' mortgage, which allows applicants who earn at least £25,000 a year to borrow up to seven times their income.

Applicants must work in a pre-approved profession and borrow up to a maximum of 90% of the property's value.

Habito's loan differs from a conventional mortgage in that the interest rate is fixed for the full term of the loan (for example 25 or 30 years) rather than the standard two or five years.

Find out more: should you fix for 25 years with Habito?

Does a higher borrowing limit come at a cost?

One of the drawbacks of Habito's deal is that its interest rates are higher than many of its competitors, and this is a trend on mortgages that offer higher income multiples.

When we analysed the five cheapest 90% and 95% mortgages by their initial rate, we found that the highest multiple available was four-and-a-half times income.

Nationwide's 'Helping Hand' deal is priced around 0.6% more expensive than the cheapest mortgages on the market, so the ability to borrow a higher amount may come at a premium price.

Mortgage application form on wooden table.

What's happening to the mortgage market?

Mortgage rates have been on the rise in the last few months, with three increases to the Bank of England's base rate resulting in lenders hiking their prices.

For borrowers with big deposits, the flurry of sub-1% mortgages seen last Autumn have long disappeared, with the cheapest rates having doubled in the space of six months.

There is better news for first-time buyers, however. Rates on 90% and 95% mortgages haven't been as strongly affected by base rate increases, meaning lots of great deals are still available.

Will house prices continue to rise?

House prices are continuing to soar. The most recent Land Registry data shows prices rose by nearly 11% year-on-year in February.

Experts anticipate that house price growth will slow down as the year progresses, but at a time when demand is outstripping supply, it's unlikely that prices will fall anytime soon.

Recent research by the estate agent Savills found that nine-in-10 househunters had their search affected by a lack of available properties. Rightmove reports properties are selling in an average of 36 days, the joint lowest figure recorded since before the pandemic.

Find out more: what's happening to house prices?

Which? Money Podcast: buying a home in 2022

In a recent episode of the Which? Money Podcast, we tackled the difficulties facing people looking to get on to the property ladder this year, featuring insight from Esther Djikstra from Lloyds Banking Group and Lynda Clark of First Time Buyer magazine.

You can listen to the full episode below.