Home Affordability Calculator

Affordability has three layers and only the first is arithmetic. A lender sets a ceiling from income, deposit and existing commitments. Beneath that sits what the monthly payment leaves room for once the rest of life is paid for, which is usually a lower figure. Beneath that again sits what would still work if the rate reset higher or income dropped, lower still. This calculator addresses the first layer; the sections below describe the other two.

The income multiple test and its limits

Many lenders cap borrowing at a multiple of gross household income. Published multiples commonly run between 4 and 5.5 times, with most lending clustered at the lower end of that band and the higher figures reserved for applicants a lender judges lower-risk. On 80,000 of combined income, 4.5 to 5 times is roughly 360,000 to 400,000 of borrowing, and with a 10% deposit it puts property in the 400,000 to 445,000 range. That is the lender's ceiling rather than a spending figure. The multiple works as a test because income tracks repayment capacity reasonably well, but it says nothing about existing debts, childcare, commute costs, or how much flexibility a household wants to keep. Lending standards tightened after 2008, and a figure that clears an underwriting model can still sit above what a particular household would pick.

The 28/36 rule, and what this tool does with it

A tighter personal filter caps housing at 28% of gross monthly income and total debt payments at 36%. On 80,000 gross, which is 6,667 a month, that is 1,867 of housing and 2,400 of total debt service. What this calculator does with the 28% is narrower than the original rule: it applies the whole of it to mortgage principal and interest and reserves none of it for property tax, insurance or maintenance, so the figure here is a ceiling on the loan payment alone. Those other costs come out of the same 28% in the rule as usually stated. At the sample figures, allowing 300 a month for tax and insurance lowers the maximum price from 256,221 to 208,758, and allowing 500 lowers it to 177,116. The 36% total-debt ratio is described here but not computed by the tool.

Testing the payment against a higher rate

Many lenders check the payment at a rate several percentage points above the one on offer, a practice shaped by the 2008 downturn. The same arithmetic works as a personal check: if a fixed rate later resets higher, would the payment plus property tax, insurance and utilities still fit the monthly budget? An answer of “it would be tight” places the price near the top of the range; an answer of “no” places it above, whatever a lender approves.

How deposit size changes the rate

A larger deposit cuts the loan, and it can also move the borrower into a lower loan-to-value band where lenders often price at a lower rate. On a 400,000 property at 6.5% over 30 years, moving from a 10% deposit to a 20% deposit cuts the monthly payment by about 253 from the smaller loan alone. Where the larger deposit also secures a rate a percentage point lower, the gap is about 459 a month; at two points lower, about 654. Those are payment differences rather than interest savings. Of the roughly 91,000 total-payment gap at the same rate, 40,000 is the extra principal the larger loan repays and about 51,000 is interest; at a point lower the gap is about 165,000 with about 125,000 of interest, and at two points lower about 235,000 with about 195,000 of interest.

The costs that come with the house

The mortgage payment is the largest line but not the only one. Recurring ownership costs typically include local property tax, buildings insurance, maintenance, and any service or ground charge the tenure carries. Maintenance is lumpy rather than monthly: a heating system, a roof or a kitchen arrives every few years rather than every month, and a common planning convention sets aside a percentage of the property value each year to cover it. Utility costs scale with floor area as well. Together these add a monthly figure on top of the mortgage, and affordability arithmetic that counts only the mortgage understates the running cost.

The cash needed to move in

Getting into the property costs money beyond the deposit. Transfer or purchase taxes, which vary widely by price, location and buyer status, legal fees, a survey, any mortgage arrangement fee, removals and basic furniture all fall due around the same time. Affordability arithmetic that counts only the deposit understates the cash required at completion.

A ceiling is not a purchase price

Affordability sets a ceiling; it does not describe a purchase. A price at the top of the ceiling leaves nothing spare for a rate reset, a job change or an unplanned cost, and capacity left unused at a lower price is available for other things. Where a household places itself inside the ceiling is a judgement the arithmetic does not make.

The calculator's limits

This tool estimates borrowing capacity from income, deposit and existing debt payments. It does not run the 36% total-debt test, the stress test at a higher rate, or the ownership-cost layer. It applies no minimum or maximum loan-to-value test either, so a large deposit against a small income still returns a price. The multiple is applied to gross income before tax, and the payment arm assumes a repayment mortgage on standard amortisation rather than interest-only.