Maximum Mortgage Calculator: How Much Can You Borrow?

How the calculation works

Maximum Mortgage Amount: How to Work Out the Loan You Can Borrow

Before you view properties or speak to a lender, it helps to know roughly how large a mortgage your household could support. That figure depends on two blocks of information: your financial position (take-home pay and existing debts) and the terms of the loan (interest rate and term). This calculator combines both blocks in one simulation. It works backwards from the monthly payment you can afford to the loan size that payment would support, using the same annuity arithmetic that underpins a standard repayment mortgage.

How the maximum loan is calculated

The starting point is the largest monthly payment the new mortgage can take. You multiply your combined monthly take-home pay by the affordability ratio you want to test, then subtract the monthly payments on any existing debts. What remains is the most you can pay each month towards the new loan without exceeding that ratio.

Once that ceiling is set, the annuity formula is applied in reverse. The standard formula calculates the monthly payment from the loan amount. Here the calculator starts from the payment and works out the loan that produces exactly that payment, given the monthly interest rate and the number of payments. The result is the maximum loan amount.

The monthly interest rate is the nominal annual rate divided by twelve. The calculator writes this as the nominal annual rate divided by 1200, because the rates are entered as percentages. The nominal annual rate is itself the sum of two inputs: an index rate and the margin your lender adds on top of it. The number of payments is the term in years multiplied by twelve.

In numbers, the relationship is easy to check. At a 5% nominal annual rate over 30 years, the factor linking the loan to one monthly payment is about 186. Each unit of monthly payment supports about 186 units of loan, so the monthly payment is roughly 0.54% of the loan. Because the factor is so large, a small change in the rate or the term can move the maximum loan by a noticeable amount.

Why the affordability ratio matters

The affordability ratio, labelled DSTI (debt-service-to-income) in the formula, is the share of take-home pay that goes towards debt payments. It is a useful control because it links the mortgage to what the household can actually sustain. A ratio set too high leaves little room for bills, food, travel and savings, and it leaves little margin if interest rates rise or income falls.

There is no single fixed percentage that applies to every borrower in the UK. The Financial Conduct Authority (FCA) does not set a fixed ratio. Its mortgage rules require lenders to assess affordability, and MCOB 11.6.5 requires that this assessment covers the repayment of capital and interest over the term. Each lender sets its own criteria within those rules. The ratio you enter here is therefore a planning assumption, not a regulatory limit. Choose a figure that reflects your real spending, and test a lower figure as well as a higher one to see how much the result moves.

Interest rate, term and the size of the loan

The relationship between rate, term and loan size is one of the most misunderstood areas of borrowing. A lower rate increases the maximum loan because more of each payment reduces the capital and less goes on interest. A longer term has a similar effect: it spreads the interest over more months, so the same monthly payment supports a larger balance.

The trade-off is cost. A longer term means paying interest for many more years, and the total repaid can be substantially higher, even though each monthly payment is lower. Comparing a 25-year and a 35-year term in the calculator shows the increase in borrowing power, but it does not show the extra interest. To see the total cost, multiply the monthly payment by the number of payments and compare the totals for each term.

The rate you enter should also be realistic. A fixed rate gives certainty for its initial period, while a tracker moves with the index rate plus the margin. If you are comparing a fixed deal with a tracker, run the calculator with each rate and note the difference in the maximum loan.

Affordability in practice: what lenders look at

Lenders assess far more than the figure this calculator produces. They look at the loan-to-value ratio (LTV), which compares the loan with the valuation of the property. A smaller deposit means a higher LTV, which can narrow the choice of products and affect the rate offered. If the valuation comes in below the agreed price, the lender may lend less, so the loan you can obtain may fall short of the calculated maximum.

Lenders also look at the type of income. Salaried income is usually straightforward to evidence. Self-employed income, bonuses, overtime and commission are often treated differently, and lenders commonly average several years of accounts or payslips. Fixed-term contracts and recent changes of job can also affect the amount considered.

Credit history matters too. Missed payments, defaults and high balances on credit cards can reduce the amount offered, even when the calculated ratio looks acceptable. Lenders also check outgoings in detail, including regular commitments that do not appear as debts, such as childcare costs or maintenance payments.

Under MCOB 11.6.18R, lenders must take into account the likely impact of future interest rate increases on affordability for at least five years, unless the initial fixed period is five years or more. This is why a calculator result at today's rate can overstate what a lender will approve. The calculator does not apply a built-in stress test. To approximate one, raise the interest rate input and see how much the maximum loan falls.

Edge cases and when the result is not reliable

Several situations need extra care. If the term runs close to or beyond the age at which lenders stop lending, the maximum loan may be restricted, even if the arithmetic allows more. If you plan to retire during the term, the income assumed at the start may not hold for the full period, so the ratio should also be tested on the income you expect after retirement.

Interest-only mortgages work differently. The formula here assumes capital and interest are repaid together over the term, which is how a standard repayment mortgage works. An interest-only loan has different payments and different risks, so this calculator does not describe it.

Very low or very high interest rates can also make the output sensitive. Small changes in the rate can move the result noticeably over a long term, so it helps to test a range of values rather than rely on one figure.

The calculator handles two boundary cases in a fixed way. First, if the index rate and the margin are both zero, the monthly rate is zero and the standard factor cannot be evaluated directly. In that case the calculator uses the mathematical limit of the formula as the rate approaches zero, so the maximum loan equals the monthly payment multiplied by the number of payments. A zero rate is rarely realistic, so treat that result with caution. Second, if existing debt payments equal or exceed the share of take-home pay you have chosen, no monthly payment is left for the new mortgage. The calculator then shows a warning instead of a loan amount. A result of zero or below means the existing commitments already use the whole budget, not that a negative loan is available.

The term must be a whole number of years from 1 to 50. Shorter periods, such as a few months, are not accepted, so the number of monthly payments is always at least 12.

Finally, if the household has variable income, several dependants or a complex mix of debts, the simple ratio may not capture the position. In those cases, the result is best treated as a rough guide.

Common mistakes

A common error is to enter gross salary instead of take-home pay. The formula is built on net income, so using gross income overstates the monthly ceiling and can produce a loan that no lender will approve. Another frequent mistake is to ignore small regular debts, such as store credit or a mobile phone contract, because they seem minor. These payments reduce the ceiling and should be included.

People also often overlook the margin. Entering only the index rate, rather than the index rate plus the lender's margin, understates the nominal annual rate and therefore overstates the loan. The calculator uses the sum of the two inputs, so both must be entered.

Finally, comparing results across different terms without looking at total cost can lead to a poor choice. A longer term raises the amount you can borrow, but it also raises the total interest you pay.

When to speak to a mortgage adviser

Use this calculator to set a realistic budget before you start looking at homes. It is particularly useful for narrowing the range of loan sizes and deciding which terms to explore. Once you are close to a lender's limits, or if your income or credit history is complicated, speak to an FCA-authorised mortgage adviser. An adviser can compare products from several lenders and help you obtain an agreement in principle, which gives a clearer indication of what you can borrow. The initial disclosure rules in MCOB 4.4A cover what an adviser must tell you at the outset, including the basis of its remuneration.

The Financial Conduct Authority publishes the rules on mortgage affordability and borrower protection in the FCA Handbook. The interest rate stress test rule and the FCA page on the Financial Policy Committee's mortgage market recommendation are good starting points for checking how lenders assess borrowing. These public sources set the framework within which lenders operate.