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An often overlooked part of lenders’ affordability assessments is your ‘mortgage-to-salary ratio’. This is essentially the percentage of your annual income that you will be spending on your mortgage payments each month - but how much is too much, and what can you do if your ratio is too high? Find out in this guide.
What is the Mortgage to Salary ratio?
The mortgage-to-salary ratio is the ratio between your total mortgage payments and your gross annual salary, expressed as a percentage.
Most mortgage lenders will cap your maximum borrowing at around 4.5 times your annual salary, but as part of their affordability assessment, some will also check that your mortgage-to-salary ratio is at an acceptable percentage and factor in outgoings too.
This ratio is used to help mortgage providers determine how much they are willing to lend you and ensure that you can comfortably afford the monthly mortgage payment. It is also used to help assess your overall financial situation and decide whether or not you are likely to make regular monthly payments on time and in full.
If it’s a joint mortgage, lenders will assess both salaries and the ratio may be higher.
What percentage of your income should you spend on your mortgage payments?
Ideally, your monthly mortgage payment should account for around 28% of your post-tax income. This percentage is calculated by taking your total mortgage payments over a 12-month period as a proportion of your annual salary.
This percentage is important for mortgage lenders to take into account when assessing a home finance application, as it helps them ensure that customers can afford the payments and are not overextending themselves.
For example, if you are earning £2,000 per month after tax and spending £500 per month on your mortgage payments, your mortgage-to-salary ratio would be 25%.
Speak to a mortgage affordability specialist today
How much is too much for a monthly mortgage payment?
Although most experts recommend that you spend 28% of your gross monthly income on your mortgage, it is possible to get approved for one with a higher ratio than this.
If you are paying 30% or more of your salary towards your mortgage, then you may find it difficult to cover other living expenses, and therefore may not be approved by a lender.
It's important to talk to a mortgage adviser or existing lender (if you are remortgaging) about your financial situation and make sure you are not overextending yourself.
Of course, the lower the percentage of your income that is taken up by your monthly mortgage payment, the more comfortably you will be able to live.
At Teito we understand how difficult it can be to find an affordable mortgage that meets all your requirements and our experts are on hand to help you find the right deal.
Calculating your mortgage-to-salary ratio
Follow the steps below to work out your mortgage-to-salary ratio.
Step 1
Enter the amount you are looking to borrow into our repayment calculator below along with the term length and repayment type you are considering. We have set the default interest rate on this calculator to 4% as this is representative of the current market conditions.
Step 2
Divide your monthly mortgage payments by your monthly income and multiply the result by 100 to find out what percentage of your income you will be spending on your mortgage.
If the result is more than 30%, speak to a broker to find out what your options are.
At Teito we understand that there is no one-size-fits-all when it comes to mortgages and so our experts will work with you to help find the right deal for your needs and circumstances.
Additional tip
When you can, it's also important to remember to set aside some money for savings each month. For many people, it might be difficult to imagine having any money to spare but having a rainy day fund can make all the difference in helping you stay financially secure.
Ultimately, your mortgage should be affordable andt fit comfortably within your budget. At Teito, we are here to support you on every step of your mortgage journey. Our experts are on hand to answer any questions you have, and help you choose the right option.
What to do if your ratio is too high
If your mortgage to salary ratio comes in at 30% or more, the first thing to remember is that not all mortgage lenders will decline you as a result of this.
It is, however, a good idea to speak to a mortgage broker if you have a high mortgage-to-salary ratio. There are solutions to explore, such as putting down a large deposit, using a guarantor, or finding a lender who won’t penalise borrowers with high ratios.
At Teito, we have advisers who specialise in mortgage affordability, and they can help you find the best solution for your needs. Get started here to book in a free, no-obligation chat with one of them to find out what your options are.
FAQs
The typical amount that UK householders spend on their mortgage payments is 17.8%, according to data from Statista. These figures were gathered across a period spanning more than a decade, between 2010 and 2023.
Keep in mind that it is possible to get approved for a mortgage with a significantly higher ratio than this, but it’s a good idea to talk to a broker if yours is on the high side.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.