The income multiples used by mortgage lenders vary from one lender to another. Some are more ‘generous’ than others and will allow over five times the household income to calculate how much a customer can borrow.

All lenders will also take into account a variety of factors as well as just a basic income multiple calculation before agreeing to lend such as credit card payments, loans and maintenance payments.

For example, if a borrower has an annual income of £20,000 and monthly loan repayments of £100 the lender will deduct a years worth of loan payments (£100 x 12 = £1200) leaving an annual income figure of £20,000 – £1200 = £18,800

The same applies to credit card and maintenance payments.

There has been recent news to suggest the FSA will reduce the maximum income multiple allowed to 3 times.

Based on current figures the average UK income is £25,000 and the average UK house price is currently £205,000

For a single income this already currently requires over 8 times the income so if the multiple was reduced to 3, the maximum the average individual income could only borrow £75,000 and with two ‘average’ incomes in the household the total would still only be £150,000.

This would mean a minimum deposit of 27% would be required for an ‘average’ income couple to afford an ‘average’ house.

Or house prices will need to come down even more.

Current Lender Income Multiples: (as at 18/03/2009)

Abbey – up to 5.1 x (if income over £80,000)

Alliance & Leicester – 4.75 x

Bank of Scotland – 4 x

Cheltenham & Gloucester – up to 5.25

Coventry – up to 4.3 x

First Active – up to 4.9 x

Halifax – 4 x

Intelligent Finance – up to 4.5 x

Leeds Building Society – up to 4.5 x

Nationwide – 4.1 x

Northern Rock – up to 4.5 x

Scottish Widows – up to 5 x

Standard Life – 4.3 x

Woolwich – 5 x