What percentage of your income should your mortgage be? 

If you’re considering buying your own home, it’s a good idea to think about long-term affordability rather than focusing on the initial deposit you need.  

Mortgages have become a lot more expensive over the last few years, prompting many potential homeowners to question whether they can afford to buy. 

This article explores how much of your income should be used on your mortgage payments and what can impact how much you pay. 

How much is recommended you spend on mortgage payments?

It’s generally recommended that you follow the 28/36 rule.  

So, you shouldn’t spend more than 28% of your monthly income on housing costs, including mortgage payments and insurance.  

Overall, your total debt shouldn’t exceed 36% of your monthly income, including your household bills, debt and mortgage payments. 

If your spending is likely to exceed the above percentages, a mortgage lender may reject your application due to affordability concerns. 

How do mortgage payments work? 

When you apply for a mortgage, you agree to repay the loan via monthly instalments at a set interest rate over a defined period. 

You can choose to get a fixed-rate mortgage so you know how much you’ll pay back each month, or you can opt for a different type of mortgage, where your monthly payments may vary.  

If you opt for a fixed deal, once it expires, you can remortgage and hopefully get a lower rate, reducing your monthly payments. 

With a mortgage, the principal (or capital) is the amount you borrow and have to pay back, while the interest rate represents the interest you pay, so the mortgage provider will lend you money.  

There are a few repayment methods for a UK mortgage. 

If you get a repayment mortgage, you’ll repay the capital and the interest over a fixed period, clearing your mortgage by the end of the term. 

Alternatively, you could get an interest-only mortgage, in which you pay only the interest during the mortgage term and repay the capital after the term ends.  

There are also part-and-part mortgages, where you pay off some of your mortgage but not the whole amount, combining repayment and interest-only.   

What other mortgage costs should you consider? 

While mortgage payments represent the biggest cost, it’s not the only one associated with buying a home. 

You also have to consider the cost of life insurance, buildings insurance, typically requested by mortgage lenders, and potentially contents insurance. 

What do lenders consider when you apply for a mortgage? 

When you apply for a mortgage, lenders carefully consider whether to approve your application based on whether or not they believe you can afford the monthly payments. 

They’ll look at: 

• Your household income, including salaries or earnings from self-employment, as well as commission and bonuses.
• Your regular spending, including household bills. 
• Your debts, such as loans or credit cards. 
• Your credit score and history.  
• If you can afford your monthly mortgage payments if interest rates rise or your circumstances change. 

Mortgage lenders usually consider lending up to four to 4.5 times your annual income. So, if you earn £35,000 a year, you may be able to borrow between £140,000 and £157,500. 

What should you consider when deciding on mortgage payments 

You could look at your debt-to-income (DTI) ratio, which is the amount of your monthly gross income that you use to pay off your debt. 

You simply add up your monthly debt costs and divide this number by your monthly gross income. Then, multiply this figure by 100 to get a percentage figure, which is your DTI ratio.  

For example, if your gross monthly income is £3,000 and your monthly debt is £1,500, your DTI ratio would be 50%. 

A lower DTI ratio is better, so in this scenario, it would be high, and you’ll want to reduce it.  

You should include: 

• Mortgage costs or rent
• Student loans  
• Your overdraft 
• Any council tax arrears
• Any other debt, such as credit cards, loans and finance 

A DTI ratio between 0% and 39% is acceptable — if it’s between 40% and 49%, you’ll need a good credit history. 

If your DTI ratio is over 50%, you’re seen as a higher risk, so the interest rates you’ll receive will be less competitive. Over 75% means your application is most likely to be rejected.  

It’s also worth factoring in the impact of your deposit, as having a big one means borrowing less money and can help you access lower interest rates, reducing your monthly mortgage payments.  

You should also take into account any general property maintenance costs, although any savings could cover this. 

Before you apply for a mortgage, it's a good idea to have emergency savings worth at least three months of your monthly expenses to help cushion any unexpected costs.  

Need expert guidance? 

Unbiased can connect you with a qualified mortgage broker who can help you with your application, determine how much you can afford to borrow and find the most suitable deal.