Should I clear debts or save a bigger deposit?

Usually clear the debts first. In the example, 400 a month of commitments costs about 74,000 of borrowing capacity — far more than 400 a month added to a deposit would achieve over the same period. Clearing high-interest debt also improves the rate you are offered.

Why does the lender's figure differ from mine?

Because they stress-test at a higher rate, count your income more conservatively than you do, and include commitments you may have forgotten — credit cards at their limit rather than their balance, and any dependants. Expect their number to be lower, and treat the gap as information rather than an error.

Home Affordability Calculator

Calculate how much home you can afford based on income.

Enter values to see the result.

How much house you can borrow against

Lenders apply two tests and grant the lower of them: a multiple of income, and a share of monthly income after existing debts. Knowing which one binds you tells you what would actually change the answer.

How it works

Applies a debt-to-income limit to your monthly income, after subtracting existing commitments.
Converts that affordable payment back into a mortgage principal at your rate and term.
Compares it against the simpler income-multiple test, and adds your deposit to give a property price.

available = (monthly income × DTI limit) − existing debts

principal = available × (1 − (1 + r)^−n) ÷ r

  r = monthly rate, n = months

property price = principal + deposit
income-multiple test: salary × 4 to 4.5

Worked example

A 90,000 salary with 400 a month of existing debt, a 60,000 deposit, at 5% over thirty years.

monthly income = 7,500
35% of that = 2,625, less 400 debts = 2,225 available
at 5% over 360 months that supports a 414,477 mortgage
plus the deposit = 474,477 property
the 4.5× income test gives 405,000, so property 465,000

Around 465,000 to 474,000, with the income multiple being the binding constraint here. Clearing the 400 monthly debt would raise the affordability figure by roughly 74,000 — often the fastest lever available.

Reading the result

Lenders stress-test at a rate well above the one you are offered. At 8% the same 2,225 payment supports only 303,231 — 27% less. If a small rate rise makes the purchase impossible, the lender will usually decline it before you find out the hard way.
Existing debt is disproportionately expensive. A 400 monthly commitment removes about 74,000 of borrowing capacity, so clearing a car loan before applying often buys more house than saving the same amount as deposit would.
Affordability is not the same as advisability. Borrowing the maximum leaves nothing for a rate rise, a repair, or a period of lower income — and the payment is fixed for decades while your circumstances are not.
The purchase price is not the cost of buying. Stamp duty or transfer tax, legal fees, survey, moving and immediate repairs commonly add 5–10%, and that money cannot come out of the mortgage.

Common questions

Should I clear debts or save a bigger deposit?: Usually clear the debts first. In the example, 400 a month of commitments costs about 74,000 of borrowing capacity — far more than 400 a month added to a deposit would achieve over the same period. Clearing high-interest debt also improves the rate you are offered.
Why does the lender's figure differ from mine?: Because they stress-test at a higher rate, count your income more conservatively than you do, and include commitments you may have forgotten — credit cards at their limit rather than their balance, and any dependants. Expect their number to be lower, and treat the gap as information rather than an error.