Published: October 4, 2025

How Mortgage Affordability is Calculated

By Donna Puncher CeMAP

Introduction

When you apply for a mortgage, one of the first things lenders determine is how much you can afford to borrow. Understanding this process gives you confidence when searching for your first home — and helps avoid disappointment later. Lenders don’t just look at income; they assess your financial stability, outgoings, and commitments to ensure you can comfortably make repayments now and in the future.

1. Income Assessment

Your total income forms the base of any mortgage calculation. This usually includes:

• Your basic salary (and, in some cases, regular overtime or commission).
• For self-employed applicants, your average annual profits over the past two or three years.
• Some lenders also consider additional income like bonuses, child benefit, or pension payments, but typically only part of this will count.

Most lenders use an income multiplier — often around 4 to 4.5 times your annual income. However, this varies depending on your credit score, deposit size, and the lender’s appetite for risk.

2. Regular Expenditure

Next, lenders review your monthly commitments, including:

• Credit card balances and loan repayments
• Household bills and council tax
• Childcare or school fees
• Subscriptions and lifestyle expenses

If your regular outgoings are high compared to income, this may reduce your borrowing capacity.

3. Stress Testing

Lenders don’t base their decision solely on today’s interest rates. They apply a “stress test” — checking whether you could still afford repayments if rates were to rise.
This ensures long-term affordability, even if your payments increase in the future.

4. Credit History and Financial Conduct

A strong credit history can make a big difference. Lenders look at:

• Whether you’ve made repayments on time
• Your total level of debt
• Any defaults, County Court Judgments (CCJs), or missed payments

If your credit file shows good management of borrowing, you’re more likely to be offered better rates.

5. Loan-to-Value (LTV) Ratio

Your deposit size directly affects how much you can borrow.
Lenders calculate the Loan-to-Value (LTV) — the percentage of the property’s value that you’re borrowing.

👉 Read more in What is Loan-to-Value (LTV)?

Typically, a lower LTV (meaning a larger deposit) results in lower interest rates and more lender options.

6. Joint Applications

If applying with a partner, lenders consider both incomes, but also both sets of outgoings.
It can increase your borrowing capacity but also means both applicants share full responsibility for the mortgage.

Summary

Mortgage affordability isn’t about guessing what you can pay today — it’s about ensuring your mortgage remains manageable for the future.
A qualified mortgage adviser, like Amber Mortgage Solutions, can help assess your realistic borrowing limit and guide you toward suitable lenders.

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