Mortgage Affordability
How large a mortgage your income supports, and which limit actually binds.
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Formula
How the calculation works
A lender does not simply multiply your income. It applies two limits at once and the smaller one decides: a multiple of annual income, and a cap on how much of your monthly income the payment may take. Here the income multiple binds, giving 270,000, while the payment cap would have allowed 271,612. The gap is small, but which one binds changes what you should do next.
That is the practical value of showing both. When the payment share binds, the constraint is month-to-month affordability, and a larger deposit or a longer term changes the outcome. When the income multiple binds, neither helps the loan figure at all. The only lever left is a bigger deposit, which raises the property price without raising the loan.
The deposit sits outside both limits. It is not borrowed, so it does not consume affordability, and it adds to the price you can pay rather than to the loan you can service. This is why the two figures are reported separately.
Common mistakes
- Multiplying income by the multiple and treating that as the answer, when the payment cap may allow less.
- Assuming a larger deposit raises the loan. It raises the property price, which is a different figure.
- Using a lender advertised multiple without checking the payment cap, which is often the real constraint at higher rates.
When to use it
- Use it before house-hunting to see the price range you can actually reach, and which limit is holding you back.
- It is a lender-style estimate, not an offer. Real affordability checks include existing debts, credit history and spending, none of which are here.
Worked example
On 60,000 a year with 20,000 saved at 6% over 25 years, the loan is 270,000 and the property 290,000.
Common questions
Why two limits?
Lenders apply a multiple of income and a cap on the payment share. Whichever binds first is the real limit.
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