How Interest Rates Affect What You Can Afford
Mortgage affordability isn’t fixed. A small change in interest rates can shift monthly payments by hundreds of pounds and alter the property price you can target. Use this guide to understand the moving parts and test them in the HouseBudget Calculator.
Why rates change affordability
- Higher rates increase monthly payments, reducing the loan size that fits your budget.
- Lower rates free up cash for a larger loan or faster overpayments.
- Stress tests use rates above your initial deal, so rising rates can tighten lender limits even before you apply.
Test rate scenarios quickly
- Enter income, debts, deposit, term and your current best rate into the HouseBudget Calculator.
- Set a housing percentage that feels safe and review the suggested monthly payment.
- Increase the rate field by 1% and check how the mortgage amount and property price change.
- Add a higher stress rate to see if your budget still works when fixes end or the base rate moves.
Choosing rate types and terms
- Short vs. long fixes: Shorter fixes can be cheaper upfront but expose you sooner to future rate changes.
- Tracker or variable: Offers flexibility but moves with the base rate; build a buffer for swings.
- Term length: Extending the term lowers payments at any rate, but increases total interest paid.
Build a buffer
Aim for a payment that still works a couple of percentage points above your initial rate. If you need to stretch, try increasing the deposit, extending the term modestly or lowering the target property price. The calculator helps you balance these trade-offs before you start viewing homes.