How is mortgage affordability calculated?

Most banks will calculate affordability slightly differently, but a general rule of thumb is that they will take only 50% of your monthly income into account when calculating this.

From this 50% they will then deduct any other credit commitments you have (e.g. car loans, personal loans and approximately 5% of all your credit card limits), to work out your maximum affordability.

They will then carry out a stress test by applying a stress rate of interest which varies between 3.5% to 8% depending on the bank. The aim of this is to confirm that you will still be able to afford your mortgage repayments if the interest rates were to increase to the test level.