How Mortgage Affordability Is Calculated

Summary

A mortgage affordability calculator estimates how much a UK lender is likely to offer you, based on your household income and existing financial commitments. Most UK lenders use income multiples — typically 3× to 4.5× your gross annual income — as a starting point, then adjust downward for existing debts like credit cards, loans, and childcare costs.

How it works

UK mortgage lending is governed by the FCA’s MCOB (Mortgages and Home Finance: Conduct of Business) rules. In practice, lenders apply a two-stage assessment:

1. Income multiple cap

The lender multiplies your gross annual household income by a factor to set a hard ceiling. The Financial Policy Committee recommends that lenders limit mortgages at or above 4.5× income to no more than 15% of new lending — this is a portfolio-level constraint, not a hard individual cap.

2. Detailed affordability assessment

The lender then calculates whether you can actually afford the payments by examining your income minus all expenditure, with the mortgage payment stress-tested at a higher rate. This often produces a lower figure than the income multiple cap. You receive the lower of the two.

Existing commitments

Monthly outgoings that reduce your effective borrowing power include:

• Credit card minimum payments
• Personal loans and car finance
• Childcare and nursery fees
• Student loan repayments
• Other hire purchase agreements

The calculator annualises these commitments and subtracts them from gross income before applying the income multiple.

Stress testing

Under FCA rules (MCOB 11.6.18R), lenders must assess whether you can afford payments if interest rates rise over a minimum 5-year forward-looking period. Most lenders add 1–3% on top of the revert rate (SVR) to create a stressed rate. If the mortgage rate is fixed for 5+ years, no stress test is required.

The formula

The calculator also shows an indicative monthly payment using the standard amortization formula at 4.5% over 25 years, to help you understand what the standard estimate would cost each month.

Worked example

Inputs explained

• Income (applicant 1) — gross annual salary of the primary earner
• Income (applicant 2) — gross annual salary of the second earner (£0 if single applicant)
• Credit cards — monthly minimum payments or regular payments on credit card balances
• Loans — monthly repayments on personal loans, car finance (HP/PCP), or other hire purchase
• Childcare — monthly nursery, childminder, or after-school care costs
• Other commitments — any other regular monthly obligations (maintenance payments, BNPL, etc.)

Outputs explained

• Conservative / Standard / Maximum estimates — borrowing range based on 3.0×, 4.0×, and 4.5× effective income
• Effective income — gross income minus annualised commitments
• Commitment impact — how much your monthly commitments reduce your borrowing power (in annual terms)
• Indicative monthly payment — what the standard estimate would cost per month at 4.5% over 25 years

Assumptions & limitations

• This calculator uses a simplified income multiple model. Real lender assessments are more granular — they account for essential living costs, credit history, employment type, and deposit size.
• The income multiples (3.0×, 4.0×, 4.5×) represent the mainstream range. Some lenders offer up to 5.5× or 6× for higher earners, professionals, or first-time buyers.
• Self-employed borrowers may face different assessment criteria — lenders typically average 2–3 years of accounts.
• The calculator uses gross income, not net. Real lender affordability models use net disposable income after tax, NI, and all living costs.
• The stress test is not explicitly modelled — the indicative payment uses a flat 4.5% rate. Real lenders would test at a higher stressed rate.
• The result is an estimate only — only a mortgage broker or lender can give you a formal Decision in Principle.

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