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Income multiples
- Income multiples tend to vary from lender to lender and can go up to five times a single income. More normally lenders will offer loans on an income basis of 3.25 to 4.5 times a single income or between 2.75 to 3.75 times on joint applications.
Of course there are exceptions to this with some lenders offering over 4 times a joint income as standard and some lenders offering higher income multiples if you are borrowing a lower loan to value or on a higher basic salary.
So if you are trying to maximise your borrowing it is worth shopping around not only for the product but also for the criteria.
What income figure do I use? -
For those employed people, if you are on a basic salary with little or no bonuses the answer to this is easy.
However if your salary is made up of a basic salary with bonuses, shift pay, allowances etc the answer isn’t so clear cut.
Most lenders will use 100% of any guaranteed income such as basic, bonuses, allowances etc as long as they are guaranteed and can be verified by your employer. For any none guaranteed income, most lenders will only accept 50% unless you can provide substantial proof that the income has been paid on a regular basis for a given period of time.
Income from state benefits and pensions may be accepted by some lenders but this isn’t the majority and is a case of shopping around to find out who will accept it and what percentage as again they may not accept 100%.
For those of you that are self employed, the lenders will be looking to use either drawings or net profit figures NOT the gross figures. However the lenders are aware that the tax affairs of the self employed are more complex and should look at cases on their own merit.
Deductions from income -
Deductions from income would include HP payments, loans, maintenance, paternity payments and mail order. On going financial liabilities with less than six months to run are not likely to be included.
Lenders will generally annualise the payments made and deduct the outgoings before they apply the income multiple. In the case of credit cards, they will take between 3% and 5% of the outstanding balance as the monthly payment .
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