How Much House Can I Afford?

What house payment can I afford?

Use our calculator to see how much house you can afford based on the mortgage you may be allowed to borrow. Share details of your income – and your partner’s, if buying together – to get an estimate of the mortgage you could potentially afford.

How much mortgage payment can I afford?

To calculate how much house you can afford, take into account your income, and that of your partner if you’re buying with someone else. When a mortgage lender checks mortgage affordability, other factors, such as your monthly outgoings, loan repayments, and the savings you have for a deposit, are also taken into account. Your credit score can be important too. 

As a home buyer, you should have a level of comfort in understanding your monthly mortgage payments. While your household income and regular monthly debts may be relatively stable, unexpected expenses and unplanned spending can derail even the most well-planned budget.

A good affordability rule of thumb is to have at least three months of payments, including your mortgage payment and other monthly debts, in reserve as an emergency fund. This will allow you to cover your mortgage payment in case of an unexpected event.

» MORE: Calculate how much your mortgage repayments may be

How does your debt-to-income ratio impact affordability?

Your mortgage lender may use your debt-to-income ratio (DTI ratio) to calculate the amount of money you can borrow. This compares your total recurring monthly debt payments to your pre-tax monthly income. For example, if you have a monthly income of £4,000 and £1,000 goes towards paying debt, your DTI ratio is 25% (1,000 divided by 4,000, multiplied by 100). 

Recurring debts include repayments on credit cards, personal loans, car loans, student loans and overdrafts. Regular maintenance payments are also included, along with the expected monthly payment on the mortgage you want to get.   

A lower ratio suggests to lenders you have the financial capacity to meet your mortgage repayments without too much trouble. This could improve your chances of getting a mortgage, and the mortgage amount you want. 

If your DTI ratio is below 50%, plenty of lenders should be willing to offer you a mortgage, particularly if your credit score is good and there are no wider concerns with your finances. However, as your DTI ratio gets higher, your choice of lenders can narrow, the mortgage rates on offer may be higher, and you may need a bigger deposit. That said, DTI is only one aspect of your finances a lender may look at – and some may not use it as part of their checks at all.

» MORE: All about mortgage eligibility

The 28/36 rule – what it is and how it works

To work out ‘how much house can I afford,’ a good rule of thumb, and one which may be used by lenders, is the 28/36 rule. This states that you shouldn’t spend more than 28% of your gross, or pre-tax, monthly income on home-related costs and no more than 36% on total debts, including your mortgage, credit cards and other loans.

For example, if you earn £4,000 a month and have £500 in existing debt payments, the rule suggests your monthly mortgage payment for your house shouldn’t exceed £940 (36% of £4,000 equals £1,440, then subtract £500).

The 28/36 rule is a broadly accepted starting point for determining home affordability, but you’ll still want to take your entire financial situation into account when considering how much house you can afford.

What factors help determine ‘how much house can I afford?’

Key factors in calculating affordability include: 

• Income: money you receive regularly, such as your salary or income from investments. Your income helps establish a baseline for what you can afford to pay every month.
• Funds available: this is the amount of money you have available for a deposit and other costs related to buying a home. You can use your savings, investments or other sources.
• Debt and expenses: monthly obligations, such as groceries, utility bills, childcare, insurance, credit cards, car payments, student loans, etc.
• Credit rating: your credit score and the amount of debt you owe influence a lender’s view of you as a borrower. Those factors will help determine how much money you can borrow and the mortgage rate you can get. 

» MORE: How much deposit do you need for a mortgage?

How much can I afford to spend on a house?

When working out how much you can afford to spend on a home, you need to think about your current circumstances, and what could happen in the future. 

Not overstretching yourself financially is key. You want to be able to comfortably afford the amount you’ll be paying out on a mortgage each month. But don’t forget the other expenses involved with buying and owning a home. These include stamp duty, mortgage fees and legal fees at the start, and then utility bills, council tax, home insurance, and so on, going forward.   

And going forward is where careful thought is also required. What are your plans for the future? If you’re thinking of starting a family soon, will everything be affordable if one of you stays home to look after your child? Can you afford childcare? Might you soon need to replace your car, and is your job secure? And what if interest rates change? A fixed-rate mortgage gives peace of mind that your repayments will stay the same for the period you fix, but what if mortgage rates are higher when your deal ends and you need to switch?   

If you’re in any way unsure what you can afford, talking to a mortgage adviser or lender could help you make sense of your options. 

» MORE: Mortgage interest rate calculator: How payments change if rates rise or fall

How much house can I afford on my salary?

Most lenders allow you to borrow somewhere between 4.5 and 5.5 times your annual salary for a mortgage. So if you earn £50,000 a year, you could reasonably expect to be able to get a mortgage for at least £225,000. 

Lenders sometimes allow bigger income multiples. For example, working in a certain profession, such as a doctor or solicitor, may qualify you for a higher multiple. 

However, whatever your salary, you’ll still need to pass a lender’s affordability checks to be offered a mortgage. Getting a mortgage in principle from a lender will give you an idea of whether you’re likely to be offered a mortgage and for how much. 

» MORE: What is happening to UK house prices? 

Home affordability begins with your mortgage rate

The mortgage rate you can get is key to determining the house that you can afford. Naturally, the lower your interest rate, the lower your monthly payment. 

To give yourself the best chance of getting a good mortgage deal: 

1. Check your credit score: the higher your score the better, so make sure it is as good as possible. Correct errors if you find them and take steps to improve your credit score if you can. 

2. Save a bigger deposit: a larger deposit means a lower loan-to-value (LTV), and that’s where the best rates are usually found. Calculate your LTV ratio by dividing the mortgage you need by the value of the property you want to buy, and multiplying by 100. The lowest rates tend to be offered at 60% LTV and below, but mortgages are also available at 95% LTV.

3. Shop around and compare: there are many different mortgage lenders, each offering various deals and rates. Taking the time to find the best deal can save you a lot of money. 

4. Get advice: advisers and brokers have the expertise to guide you towards a good mortgage. They may also have access to exclusive deals that aren’t available if you apply directly.   

» MORE: See current mortgage rates

Image source: Getty Images

About the Author

Tim Leonard

Tim is a writer and spokesperson at NerdWallet and holds the Chartered Insurance Institute (CII) Level 3 Certificate in Mortgage Advice. He has over 20 years’ experience writing about almost…

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