Buying a home is exciting, but it’s important to know your limits. How much mortgage can I afford? Taking on too much debt can lead to financial stress down the line. Let’s break it down step step.
How Lenders Assess What You Can Afford
When you apply for a mortgage, lenders don’t just hand out loans based on your salary. They take a detailed look at your finances to ensure you can manage repayments now and in the future. Their goal is to lend responsibly, preventing you from borrowing more than you can afford.
Key Factors Lenders Consider
Your Income
Your earnings form the starting point of affordability checks. Lenders look at:
- Your basic salary (before tax)
- Any bonuses, overtime, or commission (though not all lenders count these fully)
- Self-employed earnings, usually averaged over the last two or three years
- Additional income from rental properties, pensions, or investments
The higher and more stable your income, the more you may be able to borrow.
Your Financial Commitments
Lenders check what you already owe before offering a mortgage. They will review:
- Existing loans and credit cards – Outstanding balances and monthly repayments matter.
- Car finance – A lease or loan affects affordability.
- Childcare costs – Regular nursery or school fees count as fixed expenses.
- Student loans – While not always a deal-breaker, repayments reduce disposable income.
- Other mortgages – If you already own a property, lenders will factor in that commitment.
Reducing debts before applying can increase your borrowing potential.
Your Spending Habits
Lenders examine your bank statements to see how you manage money. They look for:
- Regular spending patterns – Are you consistently overspending?
- Luxury expenses – Frequent holidays, gambling, or excessive subscriptions may raise red flags.
- Lifestyle costs – Eating out, shopping, and entertainment all impact affordability.
Cutting back on unnecessary expenses in the months before applying can improve your chances.
Your Credit History
Your credit score and history show how well you manage debt. Lenders check:
- Your repayment history – Missed or late payments can hurt your application.
- The amount of credit you use – High balances may signal financial strain.
- Recent credit applications – Too many in a short period can be a red flag.
Improving your credit score before applying can boost your chances of approval.
What About Interest Rate Changes?
Lenders also stress test your finances. This means checking whether you could still afford repayments if interest rates rise. Even if you apply for a low fixed rate, they assess your affordability against a higher “stress rate” to ensure financial stability.
Loan-to-Income Ratio
One of the most important factors in mortgage affordability is your Loan-to-Income (LTI) ratio. This measures how much you want to borrow compared to your annual income. Lenders use it to ensure you’re not taking on more debt than you can realistically afford.
How Loan-to-Income Ratio Works
To calculate your LTI, divide the mortgage amount your total annual income.
Example:
- If your salary is £50,000 and you apply for a £200,000 mortgage, your LTI ratio is:
£200,000 ÷ £50,000 = 4.0 - This means your mortgage is four times your salary.
What LTI Ratio Do Lenders Allow?
Most lenders offer between 4 to 4.5 times your income. However, some may stretch to 5 or even 5.5 times in specific cases, such as:
- High-earning professionals like doctors, lawyers, and accountants
- Applicants with large deposits and minimal debt
- First-time buyer schemes offering extended affordability
Government regulations limit how many high LTI mortgages lenders can issue. This means borrowing more than 4.5 times income is usually harder to secure.
Single vs. Joint Applications
If you’re applying with a partner, lenders consider your combined income:
Example:
- You earn £40,000 and your partner earns £30,000.
- Together, your income is £70,000.
- With a 4.5x LTI, you could borrow up to £315,000.
A joint mortgage may increase affordability, but lenders still check other financial commitments before approving the loan.
How to Improve Your LTI Ratio
If your LTI is too high, you can:
- Increase your deposit – Borrowing less reduces your ratio.
- Reduce existing debts – Lower credit card balances and loan repayments boost affordability.
- Improve your income – A higher salary or extra income from side work may help.
What impacts a Mortgage Application?
Lenders assess several factors before approving a mortgage. They want to ensure you can afford the loan now and in the future. Here’s what impacts how much you can borrow.
Credit Score – The Higher, The Better
Your credit score reflects how well you manage money. A strong score increases your chances of approval and may unlock better mortgage deals.
Lenders check:
- Your repayment history – Late or missed payments can be a red flag.
- How much credit you use – High credit card balances suggest financial strain.
- Recent credit applications – Too many in a short time can make lenders cautious.
How to improve your credit score:
- Pay bills and loans on time.
- Keep credit card balances low.
- Check your credit report for errors and correct them.
Debt Levels – The More You Owe, The Less You Can Borrow
Lenders look at your existing debts to assess affordability. These include:
- Personal loans
- Car finance
- Credit cards
- Overdrafts
- Student loans
The more debt you have, the lower your borrowing power. Lenders calculate a debt-to-income (DTI) ratio, which compares your total monthly debt payments to your income.
Example:
- You earn £3,000 per month.
- Your debt repayments total £600 per month.
- Your DTI ratio is 20% (600 ÷ 3,000 x 100).
A lower DTI ratio increases mortgage affordability. Paying off debts before applying can help.
Job Stability – A Secure Income Matters
Lenders prefer borrowers with steady employment. They check:
- How long you’ve been in your job (ideally at least six months).
- If you’re on a permanent contract or probation period.
- If you’re self-employed, they usually require two to three years of accounts.
If you’ve recently changed jobs, it might be best to wait until your probation period ends before applying.
Deposit Size – Bigger is Better
Your deposit affects both how much you can borrow and the interest rates available.
- A larger deposit reduces risk for lenders, leading to better mortgage deals.
- A smaller deposit means borrowing more, often with higher interest rates.
Example of Loan-to-Value (LTV):
- You want to buy a house for £200,000.
- You have a £40,000 deposit (20%).
- Your mortgage is £160,000, giving an 80% LTV.
Most lenders require at least 5% deposit, but 10% or more gives access to better deals.
Household Bills
Buying a home is more than just paying your mortgage. You’ll have ongoing household expenses that can add up quickly. Factoring these into your budget ensures you can afford your home long-term.
Council Tax – A Cost You Can’t Avoid
Council tax is based on your property’s valuation band, which varies location. The more expensive the property, the higher the tax.
- A Band A home may cost £100 per month, while a Band D home could be £200+ per month.
- Check the council tax band before buying – rates differ between councils.
- If you live alone, you may get a 25% discount.
Energy Bills – Prices Can Fluctuate
Gas and electricity costs depend on:
- The size of your home – Larger properties cost more to heat.
- Energy efficiency – Poor insulation and old boilers mean higher bills.
- Market prices – Energy costs have risen sharply in recent years.
A good way to estimate your bill is checking the Energy Performance Certificate (EPC) of a property.
Water Bills – Fixed or Metered?
- Some homes have metered water, meaning you pay for what you use.
- Others have fixed rates, which can be higher but predictable.
- Large households with high usage may benefit from a metered bill.
Insurance – Essential Protection
There are two main types of insurance to consider:
- Home insurance – Covers damage to the building and your belongings.
- Life insurance – Can help cover mortgage repayments if something happens to you.
While home insurance is usually required lenders, life insurance is optional but advisable.
Maintenance Costs – Keeping Your Home in Good Shape
Unlike renting, homeowners must cover all repairs and maintenance. This includes:
- Boiler servicing (£80-£120 per year)
- Roof repairs (£500+ for minor fixes)
- Garden upkeep (varies depending on size)
Newer properties may have fewer issues, while older homes can require costly repairs.
Plan for Rising Costs
Household bills don’t stay the same forever. Inflation, energy prices, and council tax increases can all push costs up. Be realistic when budgeting—leave some breathing room for unexpected expenses.
Do a Rough Calculation
Before speaking to a lender, it’s helpful to get a rough idea of how much you might be able to borrow. A simple calculation can give you a starting point.
Step 1: Add Up Your Yearly Income
Lenders base affordability on your annual salary before tax. If you have a partner, you can include their income too.
Example:
- You earn £40,000 per year.
- Your partner earns £30,000 per year.
- Total household income: £70,000.
Step 2: Multiply 4 to 4.5
Most lenders offer between 4 to 4.5 times your income. Some may stretch to 5 or more for certain professions or high earners.
Example:
- If your household income is £70,000:
- 4x income = £280,000 mortgage.
- 4.5x income = £315,000 mortgage.
Step 3: Subtract Debts and Financial Commitments
Lenders consider any existing financial commitments, such as:
- Car loans
- Personal loans
- Credit card balances
- Childcare costs or student loans
Large debts reduce how much you can borrow.
Example:
- You have a £10,000 car loan, with monthly payments of £300.
- A lender may reduce your mortgage offer to account for this.
- Instead of £315,000, they may offer £290,000 or less.
Step 4: Check if Monthly Payments Fit Your Budget
A mortgage isn’t just about what a lender will give you—it’s about what you can comfortably afford.
Use an online mortgage calculator to estimate monthly repayments based on different interest rates.
Example Calculation:
- Mortgage: £300,000
- Interest rate: 5%
- Term: 25 years
- Monthly payment: £1,750
If that feels too high, consider borrowing less or increasing your deposit.
Where to Find Mortgage Advice
Before you start house hunting, it’s important to know how much you can realistically borrow. Getting the right mortgage advice can save you time, money, and potential stress down the line.
Speak to a Mortgage Adviser or Broker
A mortgage adviser or broker can guide you through the process and help you find the best deal. They have access to a wide range of lenders, some of which may not be available directly to the public. A good broker will:
- Assess your financial situation and recommend suitable mortgage options
- Explain different mortgage types (fixed-rate, tracker, interest-only, etc.)
- Help you understand fees, interest rates, and repayment terms
- Increase your chances of approval matching you with lenders who fit your profile
Some brokers charge a fee, while others earn commission from lenders. It’s worth checking upfront so you know what to expect.
Can Your Bank Help?
Your bank may offer mortgage advice, especially if you already have an account with them. They can explain their mortgage products and assess your eligibility. However, they can only offer their own mortgages, which may not be the best deal available.
Online Mortgage Calculators – A Useful Starting Point
Many websites offer mortgage calculators that estimate how much you could borrow based on your income and expenses. While these tools are useful for an initial idea, they don’t consider:
- Your credit score
- Outstanding debts
- Lender-specific criteria
- Future interest rate changes
Because of these limitations, a calculator should only be used for rough guidance. For a more accurate figure, speaking to a professional is essential.
Independent vs. Tied Mortgage Advisers
When seeking mortgage advice, you’ll come across two types of advisers:
- Independent mortgage advisers – They compare products from multiple lenders, giving you a broader range of options.
- Tied mortgage advisers – They work with one specific lender and can only offer that lender’s mortgages.
Independent advisers usually provide more choice, but some tied advisers may offer exclusive deals not available elsewhere.
Making the Right Choice
If you’re confident in your research, going directly to a lender may work. But if you want expert guidance and access to a wider range of deals, a broker is often the better option. Either way, getting advice early will put you in the best position when it’s time to apply.
A mortgage is a long-term commitment, so plan carefully. Take time to check your finances and speak to a professional.
Your home may be repossessed if you do not keep up repayments on your mortgage.
