What Is Mortgage Affordability?
If you are looking to buy a home, the first step is understanding your budget. What you believe you can afford may differ from what a lender is prepared to offer. Mortgage affordability determines how much you can borrow and depends on factors such as income, expenses, and financial commitments.
Lenders apply strict affordability checks to confirm borrowers can maintain repayments now and in the future. The Financial Conduct Authority (FCA) regulates these rules to promote financial stability and prevent lending beyond reasonable limits. Since interest rates fluctuate, lenders stress-test applications to ensure repayments remain manageable if rates increase.
How to Use the Mortgage Affordability Calculator
This tool helps estimate how much you may be able to afford when buying a property based on your financial situation. Follow these steps to use it:
Enter Your Annual Income
- Input your total yearly income before tax in the “Annual Income (£)” field.
Enter Your Monthly Expenses
- Include all regular outgoings like rent, bills, loans, credit card payments, etc.
Enter Your Deposit
- Specify how much money you have saved for a down payment.
Enter the Interest Rate
- Input the expected interest rate on your mortgage (e.g., 5% should be entered as
5).
- Input the expected interest rate on your mortgage (e.g., 5% should be entered as
Enter the Mortgage Term
Enter the length of the mortgage in years (e.g., 25 years).
Mortgage Affordability Calculator
How Much Can You Borrow Based on Your Salary?
One of the key factors in assessing mortgage affordability is your income. Lenders typically limit borrowing to around 4.5 times your salary. However, some may extend this to five or even six times if you meet specific criteria, such as earning a high salary or working in certain professions.
For instance, if your annual salary is £50,000, a standard lender might approve a mortgage of £225,000. If you earn £75,000 or more, some lenders may consider increasing this to £375,000 or higher, depending on your financial history and stability.
What If You Are Self-Employed or Have Variable Income?
If you are self-employed or earn irregular income from commission, bonuses, or overtime, lenders assess your average earnings over time. Most will calculate a two to three-year average, while some may only include a portion of your extra income.
For example, if you receive a £10,000 annual bonus, one lender may consider 50% (£5,000), while another could average it over two years. In this case, they may only count £5,000 if you consistently earned £10,000. Speaking to a mortgage broker can help identify lenders suited to your income pattern.
What Happens If Your Mortgage Term Extends Into Retirement?
Lenders assess whether you can afford repayments beyond retirement. If your mortgage extends past your planned retirement age, you may need to provide proof of post-retirement income, such as pensions or investments. If this income is not sufficient, the amount you can borrow may be lower.
For example, if you plan to retire at 67 and apply for a 30-year mortgage at 45, lenders will check your ability to make repayments in retirement. This may affect the loan amount or mortgage term offered.
Income Verification and Documentation Requirements
When applying for a mortgage, lenders require proof of income through documents such as pay slips, bank statements, or tax returns. Any differences between declared and verified income may reduce the mortgage offer.
Most lenders assess affordability using gross income but deduct tax, National Insurance, and pension contributions to calculate disposable income. Providing accurate documentation helps prevent unexpected changes to borrowing limits.
How Do Lenders Calculate Your Monthly Mortgage Affordability?
Lenders assess how much of your monthly income remains after deducting essential expenses. These expenses include:
Existing credit commitments
Loans, credit cards, car finance, or store cards affect affordability. Lenders check credit reports to verify outstanding balances and minimum monthly payments.
Household living costs
Based on modelled data from sources like the Office for National Statistics (ONS) and the Consumer Price Index (CPI), lenders estimate your essential outgoings, including utilities, food, and transport.
Personal financial obligations
Expenses such as childcare, school fees, or long-term commitments are considered, and high costs in these areas can reduce borrowing potential.
Future financial changes
Lenders may ask if you expect changes in income or expenses, such as parental leave or job changes, that could impact repayments.
How Does a Lender’s Affordability Assessment Work?
Following the 2008 financial crisis, UK mortgage regulations became stricter to ensure responsible lending. Lenders calculate how much you can borrow using a ‘stressed rate’ that considers possible interest rate increases.
For example, if you apply for a £200,000 mortgage over 25 years with a 5.5% fixed rate, your estimated monthly repayment might be £1,250. However, the lender will test this against an 8% rate to check if you can still afford repayments if rates increase. If repayments at 8% exceed your assessed affordability, the lender may lower the amount you can borrow.
Key Take Away
Mortgage affordability assessments ensure borrowers can sustain repayments both now and in the future. While it may feel frustrating if a lender offers less than expected, these checks protect both you and the lender from financial difficulties.
For more guidance, read our previous article on Mortgage in Principle to understand the first steps in securing a mortgage.
To increase the amount you can borrow, consider:
Reducing existing debt – Paying off loans or credit cards can free up disposable income.
Increasing your deposit – A larger deposit reduces risk, making lenders more willing to approve higher loan amounts.
Extending your mortgage term – A longer term lowers monthly payments, improving affordability.
Applying with a joint borrower – A higher combined income can increase borrowing potential.
Choosing a lender with flexible affordability criteria – Different lenders assess affordability differently; consulting a mortgage broker can help find the best fit.