Mortgage Affordability Calculator UK

How UK Mortgage Affordability Assessments Work

When you apply for a mortgage in the UK, lenders conduct a thorough affordability assessment that goes beyond simply multiplying your income by a set factor. While the 4.5x income multiple used in our calculator provides a useful estimate that aligns with most high-street lender criteria, the actual assessment is more nuanced and considers your complete financial picture. Understanding how lenders evaluate your application helps you prepare effectively and maximise your borrowing potential.

The Financial Conduct Authority (FCA) requires all UK mortgage lenders to conduct responsible lending assessments. This means lenders must satisfy themselves that you can afford the mortgage repayments not just at the current interest rate, but also at a stressed rate that accounts for potential future increases. Most lenders apply a stress test at the product rate plus 3%, or a minimum floor rate of around 7-8%, whichever is higher. This stress testing means your actual maximum borrowing may be less than a simple 4.5x calculation suggests, particularly if your income is modest relative to the repayment amounts.

Income Types Lenders Accept

Lenders consider various income sources when assessing affordability, though each type may be treated differently. Basic salary from employment is the most straightforward — lenders typically accept 100% of your gross annual salary. Regular overtime, bonuses, and commission are usually included but often at a reduced percentage, typically 50-75% of the average over the past two to three years. Self-employed applicants generally need to provide two to three years of accounts or tax returns, with lenders using the average or most recent year's net profit depending on their criteria.

Other income sources such as rental income from existing properties, investment dividends, pension income, maintenance payments, and certain benefits may also be considered, though each lender has its own policies on which types they accept and at what percentage. If you have multiple income streams, a mortgage broker can help identify lenders whose criteria best suit your circumstances. Some specialist lenders are more flexible with complex income structures, including contractors, freelancers, and company directors who pay themselves through dividends.

How Existing Debts Affect Your Mortgage

Monthly debt commitments directly reduce the amount lenders are willing to offer. When assessing affordability, lenders consider all regular financial obligations including personal loans, car finance (including PCP agreements), credit card minimum payments, student loan repayments, child maintenance, and any other recurring debt obligations. Our calculator applies a conservative debt multiplier to show the approximate impact on your borrowing capacity.

The effect of debt on your mortgage application can be substantial. For example, a car finance payment of £300 per month represents £3,600 per year, which at a 4x adjustment could reduce your borrowing by approximately £14,400. A credit card with a £5,000 balance, even with minimum payments of only £125 per month, might reduce your mortgage capacity by £6,000 or more. This is why many financial advisers recommend paying down as much debt as possible before applying for a mortgage. Closing credit cards you do not use can also help, as some lenders factor in your total available credit limits.

The Importance of Your Deposit

Your deposit amount determines your loan-to-value (LTV) ratio, which directly influences the interest rates available to you and, consequently, your monthly repayment affordability. In the UK mortgage market, key LTV thresholds exist at 95%, 90%, 85%, 80%, 75%, and 60%. Each time you cross one of these thresholds by providing a larger deposit, you unlock access to lower interest rates. The difference can be significant — moving from 90% LTV to 85% LTV might reduce your rate by 0.2-0.5%, saving thousands over the term.

For a £300,000 property, a 5% deposit of £15,000 means borrowing £285,000 at 95% LTV, where rates might start around 5.0%. A 10% deposit of £30,000 gives you 90% LTV with rates around 4.5%. A 15% deposit of £45,000 at 85% LTV might access rates of 4.2%. And a 25% deposit of £75,000 at 75% LTV could offer rates below 4.0%. The monthly payment difference between 5.0% and 4.0% on £250,000 over 25 years is approximately £140 per month — or over £42,000 over the full term.

Stress Testing: Why You Might Be Offered Less Than Expected

Even if the 4.5x income calculation suggests you can borrow a certain amount, the lender's stress test may reduce this figure. Stress testing works by calculating whether you could afford the repayments if interest rates increased significantly. For example, if you apply for a five-year fixed rate at 4.5%, the lender might stress test at 7.5%. On a £250,000 mortgage over 25 years, the monthly payment at 4.5% is approximately £1,390, but at the stress rate of 7.5% it would be around £1,847. The lender needs to be satisfied that £1,847 per month is affordable relative to your income and outgoings.

This is one reason why the actual amount offered may differ from our calculator estimate. Your mortgage adviser or broker can give you a more precise figure by running your details through specific lender criteria. Getting a mortgage in principle (also called a Decision in Principle) before house hunting gives you a confirmed borrowing figure that accounts for the lender's full assessment, so you know exactly what you can afford and can make offers with confidence.