Understanding what house you can afford: A guide to our Budget Calculator

Purchasing a home represents one of the most significant financial decisions most people will make in their lifetime.

Before viewing properties and falling in love with potential new homes, it's essential to understand what you can realistically afford.

Budget calculators, like those found on property websites such as newhomesforsale.co.uk, help prospective buyers determine their purchasing power by asking several key questions. Understanding why these questions matter can help you prepare properly for your home buying journey and avoid the disappointment of pursuing properties beyond your financial reach.

Total deposit

The first question any budget calculator asks is about your total deposit. This is arguably the most critical factor in determining what you can afford, as it directly influences both your borrowing capacity and your mortgage options.

Your deposit represents the upfront cash you'll contribute toward the purchase price. In the UK property market, the size of your deposit significantly impacts the mortgage deals available to you.

Lenders typically offer better interest rates to buyers with larger deposits because they represent lower risk. A deposit of at least 10% is usually the minimum requirement, though many first time buyers aim for 15 to 20% to access more favourable rates.

The deposit can come from various sources. For first time buyers, this might be personal savings accumulated over years, contributions from family members, or funds from government schemes like the Lifetime ISA, which provides a 25% bonus on savings up to £4,000 annually.

For existing homeowners, the deposit often includes equity from their current property - the difference between what they owe on their mortgage and what the property is worth.

Understanding your available deposit helps the calculator determine your maximum borrowing potential. If you have £30,000 as a deposit and can borrow £270,000, you're looking at properties around £300,000.

Total household income

The second fundamental question addresses your total annual household income. This figure is essential because mortgage lenders base their lending decisions primarily on income multiples.

Traditionally, UK lenders will offer mortgages of approximately 4.5 times your annual salary, though this can vary depending on the lender and your individual circumstances.

Some lenders may stretch to 5 or even 5.5 times for borrowers with excellent credit histories, stable employment and minimal existing debt. Budget calculators use these industry standard multiples to estimate how much you could potentially borrow.

The calculator asks for household income rather than individual income because lenders consider the combined earning power of all applicants when assessing affordability.

If you're buying with a partner, both incomes contribute to the calculation. For example, if you earn £35,000 and your partner earns £30,000, your combined household income of £65,000 could potentially secure a mortgage of around £292,500 at a 4.5x multiple.

However, income isn't just about the numbers. Lenders also consider the stability and source of income. Permanent, salaried positions carry more weight than contract work or commission based earnings.

Those who are self employed may need to provide additional documentation and might find lenders using an average of their last two or three years' income rather than their most recent year's earnings.

This question helps you understand the direct relationship between what you earn and what you can borrow, encouraging realistic expectations about the price range you should be exploring.

Where do you want to live?

In the case of newhomesforsale.co.uk, they ask you where you want to live so they can show you properties in the area within your budget, after you have completed the calculator.

Are you a first time buyer?

The question about first time buyer status isn't merely administrative - it opens doors to specific schemes and financial advantages designed to help people get onto the property ladder for the first time.

First time buyers have access to government backed schemes like Shared Ownership. While available to some non first time buyers, it is primarily targeted at those purchasing their first home, allowing you to buy a share of a property and pay rent on the remainder.

The budget calculator uses your first time buyer status to provide an estimate of what you can afford using Shared Ownership (as well as outright sale). It might suggest properties slightly above what your straight income-to-mortgage ratio would indicate.

Are you over 60?

The final question about whether you're over 60, allows newhomesforsale.co.uk to determine if you could benefit from the Homewise: Over 60s Home for Life scheme.

Get started! Calculate your budget

If you're ready to calculate what you can afford, then visit the budget calculator page here.