Mortgage based on salary
Getting a mortgage as an employee can be a straightforward or a complex task. It all depends on the circumstances of the buyer.
Whether you are in full-time employment, starting a new job, a key worker or on maternity leave, a lender will decide whether you can afford a mortgage based on salary and any other income sources they allow. This guide explains most common cases of a mortgage based on salary.
How much can I borrow?
In a simple case, you have been in the same job for over 2 years, have a basic salary with no additional items (e.g. allowances) and only tax and national insurance are deducted. Your borrowing potential will depend on your salary.
However, most employees tend to have a bit more complicated pay structure. For example, in addition to a basic salary, other items may also appear on the payslips that lenders will take into consideration.
There are numerous other potential items, which may or may not be accepted by lenders. Those lenders who do accept them, will consider these items during the affordability assessment based on their individual lending criteria.
In short, you may have heard that lenders can potentially lend up to 5 times of your income. However, dependent on the details of your income as well as other factors, such as your age and outgoings, you may find that the maximum can be far less than this.
An often-overlooked aspect is that the deductions appearing on your payslips will also influence the mortgage amount you can borrow. (We don’t mean tax and national insurance here.)
The items in question may include pension, student loan, childcare voucher, employee benefits or company share purchase scheme deductions among others. Naturally, all lenders assess these differently too.
Getting a mortgage with a new job
From time to time, everything happens at once. You may change jobs just when you find your ideal home. As long as you have a satisfactory work history, even if you’re moving from self-employment to employment, there may be a mortgage option for you.
However, lending criteria differ in this case as well. Some lenders will accept your new job’s income even ahead of you starting that job, let alone being in the probation period. Others would need you to start the new job and yet others require that you are out of the probationary period before the mortgage application is submitted.
So yes, you can get a mortgage with a new job and while on probation, but the lender will have to be selected carefully.
Getting a mortgage on maternity leave
Being a new parent is very exciting and it brings new challenges. One of them is managing the family finances.
While the mother (or sometimes the father) takes parental leave, their income will reduce temporarily. Lenders recognise the transient nature of this period and are normally willing to consider the return to work income.
As income proof, you may need to supply payslips before the maternity leave and/or a letter from the employer about the expected return date and salary.
However, getting a mortgage while on maternity leave also requires you to consider childcare costs once you return to work. This cost item will have to be part of the affordability assessment to make sure that you budget for both the mortgage and the childcare.
Key worker mortgage
This option was more readily available a few years ago, while nowadays only a few lenders consider it. Even those lenders who accept it, do it mostly on an exceptional basis. As a key worker, you will definitely benefit from professional help in terms of both identifying a suitable lender and arranging the mortgage.
However, the phrases “key worker scheme” and “key worker mortgages” are still bouncing around.
Although these property schemes are not just for key workers, you may get priority, if you are considered to be one. For example, a teacher, nurse, firefighter or a prison officer.
Other special circumstances
How about a mortgage using second job income, fixed term contract income, umbrella payslips, income paid in a foreign currency and other potential employed income types?
They can all be used, although subject to lending criteria of each individual lender. This means that there is no universal answer and each case has to be assessed on its own merit.