Can You Afford A Mortgage?

Can you afford a mortgage?

By Matt Fernell, Editor-in-Chief at Last updated 29th April 2024.

Matt Fernell

Before buying a home, you'll need to work out if you can afford a mortgage. This guide aims to help you understand mortgage eligibility and affordability.

Check if you can afford a mortgage

To work out the amount you can afford to spend on a home, you need to consider:

  • Your outgoings
  • Your total income

Deduct your outgoings from your income to determine how much you can pay for a mortgage every month. You can then dodge getting one with repayments that you cannot afford.

You can determine how much you can spend on a home with the use of a mortgage cost calculator. Just type in the mortgage amount, interest rate, and mortgage term to check how much repayments will cost.

Verify if you can afford the mortgage by comparing the calculated amount to how much you can afford to pay every month.

Will lenders accept your mortgage application?

Lenders have to carefully review your financial circumstances before they can grant you a mortgage. The rules of the Financial Conduct Authority (FCA) mean they have to ensure that you can keep up with the repayments.

To determine how much you can afford to repay, they will have to look at:

  • If you are in permanent full-time employment
  • How much you earn
  • Your outgoings and the things that you spend your money on
  • If you have people that financially dependent on you, i.e. children
  • Your outstanding debts

Lenders will also base their judgment on:

  • Your credit history: This informs lenders how much your outstanding loans are and how well you have handled debt in the past.
  • Your age: If you are close to the retirement age, you may only be offered shorter-term mortgages, and you normally need a larger deposit.
  • Your deposit: The more you can place down as a deposit, the lower the risk for the lender. Putting down a large deposit will give you more chance of being accepted, and you should also be able to be offered a lower interest rate.
  • The value of the property: The size of the mortgage you need will affect whether lenders think you can afford to keep up with the repayments.
  • The mortgage term: A shorter mortgage term means higher monthly payments, so you may only be admitted for a larger mortgage if you pay it off over a longer period.
  • If you apply on your own or jointly: If you apply for a joint mortgage you may be able to borrow more since the income of the other person will be taken into consideration as well.

They also do stress tests to examine whether you could still afford your mortgage if interest rates increased or if your circumstances changed, i.e. if you lost your job.

Work out your income

Sum up the following to determine your monthly income:

  • Your salary, including overtime and regular bonuses
  • Any income from your pension
  • Benefits and tax credits
  • Income from your investments, including shares, property and savings
  • Money you receive for child maintenance

Work out your outgoings

Make use of a calculator like Nationwide's budget planner, to sum up the amount of money that you spend every month.

Alternatively, determine your essential living costs and other expenditures yourself:

Calculate your living costs

  • Credit card balances
  • Outstanding loans or overdrafts
  • Food and drink
  • Insurance you pay for
  • Student loan payments
  • Pension payments
  • Council tax
  • Toiletries and cleaning products
  • Mortgage payments or rent
  • TV licence and subscriptions
  • Electricity, gas and water
  • Internet and phone
  • Petrol and car maintenance
  • Travel fares
  • Clothes and accessories
  • Money you save
  • Childcare and Child maintenance payments
  • School fees or costs
  • Pet costs

What else do you spend on?

Determine the total of how much you spend in an average month on:

  • Holidays and travel
  • Entertainment like music, the cinema, or sporting events
  • Your social life, including seeing friends and dining at restaurants
  • Buying alcohol and cigarettes
  • Gym memberships and other exercise costs
  • Gifts for other people or luxury purchases

How to afford a mortgage

If your income is presently too low to secure a mortgage on the property you want, you could wait until your income becomes higher or consider the following:

  • Choose a cheaper property, as a lower purchase price means lower mortgage payments.
  • Choose a longer mortgage term, which decreases the amount that you repay every month. However, you will have to pay a higher amount overall.
  • Look for a cheaper mortgage since a lower interest rate can make the repayments more affordable.
  • Lessen your expenses and unnecessary costs. Consider making a budget and spending less.
  • Increase your deposit, which should help you receive a cheaper mortgage.

You should also take into consideration income protection insurance, which could satisfy your mortgage repayments if you were unfit to work due to an illness or accident.

Get the right mortgage

Avoid applying for too many mortgages if you get rejected since this can hurt your credit record and make it more difficult for you to get accepted.

Deciding on the right mortgage for your circumstances can help you get accepted and come with lower costs than unsuitable deals.

You can get mortgages designed for:

  • Buying your first home
  • Self-employed borrowers
  • Older borrowers
  • If you have a small deposit
  • If you have bad credit

Save on bills

You can also cut down on other expenses like the following:

  • Electricity bills
  • Council tax
  • Water bills
  • Gas bills

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.