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20 May 2019

New mortgage lends homebuyers 5.5 times their salary

How risky is it?

Homebuyers will be able to borrow up to 5.5 times their annual salary with a new mortgage deal from Loughborough Building Society.

This is significantly higher than the amount you can usually borrow - which is usually capped at 4 or 4.5 times your income. But do you risk taking on more debt than you can afford?

Which? explores the new mortgage deal, and explains how income multiples affect your mortgage.

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New mortgage from Loughborough

The new deal from Loughborough Building Society is a variable rate mortgage, with a two-year discount period. This means that for the first two years, you'll pay a set amount less than the lender's standard variable rate (SVR) - currently working out to 2.45%.

After that, you start paying the full SVR, which is a relatively high 5.34%. So, the total APRC over the life of the deal would be 4.9%.

Keep in mind that the SVR could change at any time, so your monthly repayments may vary.

When applying for the mortgage, you'll have to put put down a deposit of at least 15% and pay a fee of £999. The most you'll be able to borrow is £750,000.

To qualify, you'll also need a relatively high income - at least £50,000 if you're applying on your own, or £75,000 total if you're applying with someone else.

Can you borrow 5.5 times your income?

The new deal is unusual in allowing applicants to borrow up to 5.5 times their annual salary.

Loughborough Building Society said they were responding to demands in the market.

A spokesperson from Loughborough Building Society said: 'As house prices have increased, we've come across more and more instances where the income multiple restricts people who are well able to afford the monthly payments.'

At present, however, this level of borrowing is only available on one deal, which Loughborough Building Society said it would 'monitor closely.'

How do mortgage income multiples work?

Banks and building societies will traditionally offer mortgages of between 3 to 4.5 times a person's income - known as the 'income multiple'. For example, if your total household income is £75,000 a year, the most you'd be able to borrow is between £225,000 and £337,500.

With the Loughborough Building Society deal, you'd be able to borrow up to £412,500.

There are other providers who will lend you as much as 5.5 times your income, including Clydesdale Bank. However, this offer is only available to certain professionals, who qualified in the past five years and earn at least £40,000 a year.

Darlington Building Society, meanwhile, offers a mortgage of 6 times your annual income if you belong to a specific profession.

Both cater to accountants, barristers, medical doctors, dentists, pharmacists, solicitors and vets. Darlington will also lend to actuaries, engineers and optometrists, while Clydesdale Bank's criteria includes architechts, chartered surveyors, dentists and pilots.

Should you borrow 5.5 times your income?

You should think long and hard about your future earnings and job security before taking out a mortgage at up to 5.5 times your salary.

The larger the loan, the longer it will take to pay off. You may also increase the risk of failing to make repayments, potentially costing you your home.

A variable-rate mortgage may be especially risky, as the lender could increases their rates at any time. So make sure you could comfortably afford to a jump in your monthly repayments.

It's also worth considering how these deals stack up on interest - you may find better rates on deals offering you a smaller loan.

You can use the Which? mortgage calculator to find out how much a lender might be prepared to lend you.

Ways to boost your borrowing power

Your income isn't the only factor lenders will consider when deciding how much to lend you. Here are a few steps which could boost your chances of securing a mortgage.

Find out more: Improving your mortgage chances

Earn a regular income at a stable job

Mortgage lenders will look on your application more favourably if you are in long-term employment. As a general rule, you will need to have been employed for between three to six months in your current role. So, if you're changing jobs, it might be worth waiting a while before applying. If you're self-employed, you can read our guide to self-employed mortgages.

Improve your credit history

A lender will also want to see a strong credit history. You can obtain a statutory credit report from each of the three main credit agencies - Experian, Equifax and Callcredit - for free. You should check the information held on your file is correct, as occasionally it may contain errors which could affect your ability to get a loan.

Find out more:credit reports explained - all you need to know about your credit file

Get on the electoral register

This may not seem obvious, but lenders will always check your electoral enrollment. The roll is one of the main ways lenders will verify your identity and address, so it's important to register every time you move.

Increase your deposit size

Normally, the minimum deposit is around 5% of the property purchase price. However, some products are now offering a 100% mortgage if a family member is prepared to act as a guarantor. That said, having a bigger mortgage deposit will boost your application's chances, and could lead to more attractive mortgage deals with better interest rates.

Find out more:guarantor mortgages explained

Get a joint mortgage

A joint mortgage could be an option if you want to buy a property with at least one other person, and some lenders will allows up to four to buy together. The ownership of the property could be split into shares, or you could each own the whole property as joint tenants. Obviously, it's vital you trust the person you're buying with.

Use a mortgage broker

You can save time on your application by employing a mortgage broker, or adviser who will tell you which lenders are likely to accept you based on your financial situation. They can also help speed up the application by dealing with paperwork on your behalf.

Find out more: Choosing a mortgage broker