First-time loans up to five times your salary

No first-time buyer would make any apologies for borrowing as much as they can these days. And why should they? Even in this cooler housing market, Nationwide Building Society is still forecasting price rises of 5 per cent this year. But as the average wage has increased by 3.6 per cent in the past year, according to the Office for National Statistics, first-timers still find themselves playing a very lengthy game of catch-up.

The latest data from the Council of Mortgage Lenders shows the average first-time buyer now borrows 3.21 times their income. This is the highest figure on record but it may still be optimistic. In this case, the definition of a first-time buyer is someone who is buying a property but not selling one. The figures therefore account for people who may have equity behind them from an earlier visit to the property ladder. They could use this money as a large deposit, enabling them to borrow less.

The good news for true first-time buyers is that banks and building societies are generally lending more, says Ray Boulger, senior technical director at broker John Charcol. 'The amount first-time buyers can borrow has edged upward over the last 12 months as a result of sustained low interest rates and growing competition between lenders.'

Traditionally lenders would assess borrowing levels using income multiples, which meant lending a typical 3.5 times a single salary and 2.75 times joint. Today, four times single and three times joint would be closer to typical, says Boulger.

Some lenders are willing to stretch even these revised multiples further - but on the condition borrowers have something to give in return. 'Northern Rock, for example, could lend up to 5.9 times income on its Together mortgage if you earn more than £100,000, have an impeccable credit record and take a five or seven-year fixed rate,' says Nick Gardner, director of broker Chase de Vere Mortgage Management.

On a smaller scale, Coventry Building Society will take its multiples up to 4.3 times a single income providing you earn £35,000 and have a 5 per cent deposit.

Scottish Widows will lend graduates higher income multiples than other applicants as it considers them to be potentially greater earners. It will now lend up to five times a single salary, with a Loan to Value of 102 per cent.

Other lenders will be more flexible on income multiples if you have a substantial deposit. 'Loans of less than 75 per cent of the property value tend to attract more generous terms,' says Gardner.

Alternatively, if you go for the security of payments offered by a longer-term fixed rate, you may also be regarded more favourably. Accord Mortgages - a subsidiary of Yorkshire Building Society - will lend some borrowers up to five times salary in return for taking a five-year fix.

But in many cases income multiples have now become academic as lenders move increasingly towards using affordability criteria. This is when a set percentage of your income - typically 40 per cent - must cover all existing financial commitments. As well as your proposed mortgage repayments, this will also include any credit cards, loans or store cards, monthly repayments for a car and so on. 'Using the affordability method means that the variation between what different applicants can borrow is greater,' says Boulger.

Halifax made the transition to the affordability method seven years ago. 'We take into account not only earnings but financial commitments, dependants, credit score and even your behaviour in managing money,' says spokesperson, Paul Fincham. 'This means you could end up borrowing between two and - in exceptional circumstances - five times your salary in isolation.'

Nationwide also now employs affordability criteria but still incorporates income multiples within it. As a result, it has recently increased its multiples to 4.25 times single or joint incomes. 'The borrowers' entire finances are assessed and the mortgage repayments are calculated on an assumed interest rate that will be higher than the mortgage rate,' says spokesperson, Tamsin Hemsley.

Alliance and Leicester, Intelligent Finance (IF), the Royal Bank of Scotland and Cheltenham and Gloucester are also lenders that now use affordability. Confusingly, some may still publish income multiples for the purposes of comparative mortgage tables, but this will be the average already lent.

According to Boulger, the majority of first-time buyers applying for a mortgage with a lender that uses affordability will be able to borrow more than with straightforward income multiples. But the Halifax says that the average lent to first-time buyers has remained the same for the past 15 years, at just 2.5 times income.

The Financial Services Authority is encouraging all lenders to make the transition to affordability. This means it will become increasingly beneficial for first-time buyers to clear debts before applying for a mortgage.

'Clearing £2,000 of debt could mean you can borrow £8,000 extra on your mortgage,' says Boulger. 'This could mean the difference between buying the house you want now or facing the expense of moving up a rung in a couple of years' time.'

Getting on the ladder

Rod, our fictional first-time buyer, is 28 and renting. He is single with no dependants and earns £32k a year as an electrician. his parents will give him £10,000 as a deposit but he owes £4,000 in student loans, has a credit card balance of £800 and an overdraft of £500.

Lender and maximum loan

· Abbey *£106,600

· Halifax £149,744

· HSBC £130,000

· Nationwide £134,750

· Northern Rock standard mortgage with long-term fixed rate £148,800

· Northern Rock flexible together mortgage with long-term fixed rate £164,300

*Provided £10,000 constitutes a 10 per cent deposit

For illustrative purposes only. Amounts may also vary according to mortgage term.