How Much House Can You Actually Afford?
- •What you can borrow is not what you can carry
- •Keeping payments under 30% of take-home is safer
- •Taxes, fees, and moving costs are part of the budget
📋 Contents
Limit versus capacity
A bank sizes the maximum from collateral and income. But that limit reflects the amount unlikely to go unpaid, not the amount you can comfortably repay. Borrow to the ceiling and a small rate rise, or a few months without income, immediately puts you under strain.
| Measure | What it looks at |
|---|---|
| Loan-to-value | Max loan against the price |
| Debt-to-income | Yearly payments vs income |
| Your own test | What remains after fixed costs |
Setting your own ceiling
A widely used test is keeping the monthly payment under 30% of take-home pay. Adding service charges and taxes, total housing costs under about 40% leaves room for other spending and saving. What matters is calculating from take-home pay, not gross salary.
Common misconceptions
The most dangerous idea is that prices always rise, so you should stretch to buy. Property has stayed flat for long stretches and fallen at times — and if you cannot hold through it, you miss the recovery entirely. With a leveraged asset, surviving matters more than being right about direction.
Frequently Asked Questions
How large a deposit do I need?
Lending limits often make 20-30% of the price the practical minimum. Adding purchase costs on top, with some slack, is the safer target.
Should I take the longest term?
It lowers the monthly payment but raises total interest considerably. If you are extending the term to qualify, that itself signals the amount is beyond what you can carry.
Fixed or variable rate?
Fixed helps if rates rise, but predicting that is hard. If you choose variable, the test is whether you could carry the payment at a higher rate.
Do other debts reduce my limit?
Yes. Personal loans, car finance, even an unused overdraft limit often count. Clearing them in advance helps when planning a mortgage.
If prices fall, will the bank demand repayment?
Not usually for a loan already drawn. But refinancing or extending the term triggers a fresh valuation, and terms can worsen at that point.