Getting a £200,000 mortgage on low Income.

Is it possible to get a £200,000 - £250,000 mortgage on a relatively low income?

The traditional approach to mortgage lending was for banks to give 3 times income. This means to get a £200,000 mortgage you would need to earn an average salary of £67,000 a year. If you have a partner, the bank may also lend an additional amount equal to 2 times their income.

However, for the vast majority of British workers, a £200,000 mortgage would be beyond their scope. Yet, with average UK house prices now reaching £200,000 why does demand keep rising. How are people managing to get a mortgage for the average house?

1. Flexible Lending

Firstly, banks and building societies are no longer using traditional lending techniques. With a period of relatively low long term interest rates, banks are increasingly using a test of affordability. Basically they will look at average outgoings and total income to decide how much they can lend. Banks such as HSBC and Abbey National are ,in some cases, lending up to 5 times income. This reduces the needed income to £40,000.
The problem with this flexible lending is that mortgage payments are taking up a bigger % of people's disposable income; if long term interest rates were to rise then there may be many homeowners who would struggle to meet their mortgage payments.

2. Interest Only Mortgages

Interest only mortgages means that homeowners will only pay the interest on the loan; they will make no capital repayments. The effect of this is that, in theory, they can borrow bigger amounts because their mortgage payments will be lower.

3. Self - Certification Mortgages.

Self Certification mortgages enable a homeowner to borrow a large mortgage loan, without having to prove their income. Self certification mortgages are aimed at the self employed, who have difficulty proving income or their income is volatile. However, self certification mortgages can be used by people who wish to borrow more than the maximum of 5 times. The FSA has investigated the self cert market and warned against irresponsible lending. However, if a homeowner is determined to borrow much higher than his salary, self certification mortgages make it possible.

4. Large Deposit.

A large deposit will help getting a £200,000 mortgage. Firstly, banks usually offer better rates for those who are borrowing a low % of their house. This is particular important for homeowners wishing to try and get a self certification mortgage. The problem is that to save 15% of a £200,000 mortgage can be very difficult. To save £30,000 is difficult, especially if rent payments are very high. Quite often, the most popular way for getting a big mortgage on a low income is to borrow a deposit from parents or friends.

5. Mortgage against Parents House

Another option is to borrow using your parent's house as capital. Alternatively a mortgage could be got in your parents name.

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