How much can I borrow, and what does a lender actually count?

How much can I borrow? Not your salary times four. Borrowing capacity is a payment worked backwards, not a salary multiplied forwards. A lender decides what monthly payment your household can sustain under stress, converts that payment into a loan at a rate of their choosing, and then checks the answer against an income multiple as a ceiling. Two of those three steps have nothing to do with your salary, which is why the number moves when nothing about your job has.

The income multiple is the ceiling, not the answer

Most lenders will quote something like four to four and a half times income, and some will stretch further for high earners or particular professions. It is a real limit and it is where every conversation starts, but it is rarely what actually decides the offer. The multiple is a blunt cap applied after a more detailed test, and for most applicants the detailed test bites first.

Two details matter more than the multiple itself. The first is what counts as income: basic salary generally counts in full, while bonuses, commission, overtime and second jobs are often counted at half, or averaged over two or three years, or ignored entirely. The second is that the multiple applies to income after committed outgoings are deducted, which is where most of the disappointment happens.

The stress test is what really sets the number

Behind the multiple sits an affordability assessment, and the important thing about it is that it does not use the rate you are being offered. It uses a higher one — the reversion rate plus a margin, or a regulatory floor — on the theory that you should still be able to pay if rates rise during the mortgage. In the UK that stress test is not a house rule but a regulatory one, set out in MCOB 11.6 of the FCA Handbook; most countries have an equivalent, and the principle is the same everywhere.

That single decision explains why borrowing capacity falls in a rising market. Here is the same monthly payment of $1,750 over 25 years, converted into a loan at different rates:

Nothing in that table is about the borrower. The same household, the same income, the same $1,750 a month, and the loan it supports falls by $121,432 across the range. When people say a rate rise "prices buyers out", this is the mechanism — the affordability calculator reproduces it with your own figures.

What counts against you, and by how much

Committed outgoings are deducted from income before anything else happens, so they cost far more loan than their size suggests. A car finance payment of $300 a month does not reduce your borrowing by $300; at a four-and-a-half times multiple it reduces it by roughly $16,200, because the annual $3,600 is stripped out of the income the multiple is applied to.

What typically gets counted:

• Loan and finance payments — car finance, personal loans, buy-now-pay-later arrangements, and anything else with a fixed monthly commitment.
• Credit card balances — usually an assumed monthly repayment of a few per cent of the balance, even if you clear the card every month. Paying it down before applying is one of the few quick wins available.
• Childcare and maintenance — real, ongoing and frequently the largest single deduction for households with young children.
• Student loan repayments — treated differently in different countries, but rarely ignored.
• Dependants — most lenders apply a household expenditure figure that rises with the number of people in it.

The debt-to-income calculator gives you the same ratio the underwriter will compute. As a rough guide, a total debt-to-income ratio above about 40% — including the new mortgage — is where offers start to narrow.

The deposit does two jobs

The obvious one is that it reduces the loan. The second is that it sets your loan-to-value ratio, which sets the rate you are offered, which feeds back into the affordability test. Rates are tiered at round LTV numbers — 90%, 85%, 80%, 75% — and crossing a tier is often worth more than the extra deposit itself.

It is worth checking whether a modest increase in deposit drops you into a lower band. Saving another $5,000 to cross from 90% to 85% can cut the rate enough to pay for itself many times over across a five-year fix. The mortgage calculator will show the difference at each rate.

If your income is not a salary

Self-employed applicants are not penalised in principle, but they are assessed on evidence rather than on a payslip. Expect to be asked for two or three years of accounts or tax returns, and expect the lender to use an average rather than your best year — or, in some cases, your lowest. Dividends and retained profit are treated inconsistently between lenders, which is the strongest argument for using a broker who knows which ones read the accounts the way you would.

Two practical consequences. Deliberately minimising taxable profit reduces the income a mortgage lender can see, so the tax saving and the borrowing capacity pull against each other in the years before an application. And a recent change in trading structure — incorporating, or switching from employment — usually restarts the clock on the evidence a lender wants.

How to work out your own number

Do it in this order, because each step feeds the next.

1. Start from the payment, not the price. Decide what you can genuinely pay each month with the rest of your life still funded. That is the input everything else follows from.
2. Convert it at a stressed rate. Use two or three points above the rate you are being quoted in the repayment calculator. The loan that comes out is close to what a lender will land on.
3. Subtract your commitments and check the result against the debt-to-income ratio.
4. Add the costs that are not the mortgage — transfer taxes, legal fees, survey, moving, and the repairs that follow a purchase. The total loan cost calculator covers the borrowing side of it.
5. Keep a reserve. Buying at the absolute limit of an affordability test leaves nothing for a boiler, a redundancy or a rate reset. The emergency fund calculator gives a target worth having before the deposit is spent, not after.

The honest summary is that the maximum a lender will offer and the amount you should borrow are two different numbers, and only one of them appears on the offer letter.

This is general information, not financial advice. Lending rules differ by country and by lender, and the worked examples above ignore fees and taxes. For a decision about your own borrowing, speak to a regulated adviser, a broker or the lender itself.