Affordability
How much can I borrow? How lenders really decide
"How much can I borrow?" is usually the first question anyone asks about a mortgage, and the answer sets the price range you can look at. Lenders all have their own detailed models, but they are built on the same few ideas. Understand those and you can estimate your own figure, and see which levers actually move it.
1. Income multiples: the starting point
Most lenders start with a multiple of your gross (before tax) income, or your combined income if you buy with someone else. Around 4 to 4.5 times is typical. Some lenders go to 5 times or more, usually for higher earners or certain professions, and rules limit how many high-multiple mortgages lenders can make, so those are not available to everyone.
On a £55,000 salary with a £40,000 deposit:
| Multiple | Loan | Price you could reach |
|---|---|---|
| 4 times | £220,000 | £260,000 |
| 4.5 times (typical) | £247,500 | £287,500 |
| 5 times | £275,000 | £315,000 |
The gap between lenders is real: the same person could be offered anything across that range, which is one reason a broker can be useful.
2. What counts as income
Basic salary counts in full. Bonus, overtime and commission are often only partly counted, commonly around half, and lenders usually want to see a track record of it. A regular £10,000 bonus counted at half adds about £22,500 to what you could borrow at 4.5 times. Self-employed applicants are usually assessed on two or more years of accounts or tax returns.
3. Debts come straight off
Regular commitments, such as loans, car finance, credit card repayments and childcare, reduce what you can borrow. A simple way to think about it: each £100 a month of commitments takes about £5,400 off the loan at 4.5 times income. A £300 a month car finance deal costs you around £16,200 of borrowing.
Clearing a small loan or credit card before you apply can increase what you can borrow by far more than the balance you pay off.
4. The stress test
Lenders also check you could still afford the payments if rates rose, using a higher "test" rate. On the £247,500 loan over 25 years, the payment is £1,476 a month at 5.2%, but £1,781 at a 7.2% test rate. On a £55,000 salary, take-home pay is about £3,540 a month (before any pension contributions), so the payment would be around 42% of it now and 50% at the test rate. Lenders also look at your actual spending and credit history, so two people on the same salary can get different answers.
5. Your deposit sets a limit too
Most lenders will lend at most 95% of the property's value, so your deposit caps the loan as well as your income does. With a 5% deposit, the loan can be at most 19 times the deposit.
Take a couple earning £85,000 between them, with £300 a month of car finance and a £15,000 deposit. Their income supports about £366,000 at 4.5 times, but a £15,000 deposit only supports a loan of £285,000 (a £300,000 home). Here the deposit, not the income, is what limits them, and saving more would help more than earning more.
Ways to borrow more (sensibly)
- Pay down or clear debts before applying, especially ones with high monthly payments.
- Buy with someone else to combine incomes, understanding that you are both responsible for the whole loan.
- A longer term lowers the monthly payment (from £1,476 to about £1,359 over 30 years in our example), which can help with affordability checks, at the cost of more interest overall.
- Check your credit file for mistakes, register to vote at your address, and avoid applying for new credit in the months before a mortgage application.
- Save a bigger deposit if, like the couple above, it is the deposit that limits you.
Being able to borrow a figure does not mean you should. Work out a payment you would be comfortable with if rates rose, and set your price range from that.
Estimate your own figure
The affordability calculator applies these rules to your income, debts and deposit, shows the payments at your rate and at a test rate, and tells you whether your deposit or your income is the limit. Pick an area and it compares your budget with average prices there, and what you would need to afford each type of home.