Start from the house, not the pay slip
Affordability is usually asked the wrong way round. People start with their income and ask what it buys. When comparing one country with another, the more useful question is the reverse: given a typical home price in a place, what annual income does that price imply? That implied income is comparable across borders in a way that a raw price never is, because it absorbs local deposit norms, interest rates, loan terms and the lending ratios banks actually apply.
This article is only about that one calculation. It does not cover the gross to net conversion, which is a separate problem, and it does not tell you whether any particular market is expensive. It gives you a chain you can run yourself with figures you have verified locally.
The five link chain
- Price to loan. Subtract the deposit the local market expects. The loan is what remains.
- Loan to monthly payment. Apply the amortisation formula using the local rate and term.
- Payment to total housing cost. Add recurring property taxes, building insurance, service or condominium charges and any mandatory loan insurance.
- Housing cost to required income. Divide by the lender’s maximum housing cost ratio, which may be expressed against gross or against net income depending on the country.
- Sanity check. Express the result as a price to income multiple and compare it with the multiple in other places you are considering.
The amortisation formula
Monthly payment equals loan multiplied by r, divided by one minus (1 plus r) raised to the power of minus n. Here r is the monthly interest rate, meaning the annual rate divided by twelve, and n is the number of monthly payments. Every mortgage calculator you will find is doing exactly this, so there is no need to trust an unfamiliar site with your assumptions.
An illustrative worked example
All figures below are invented for illustration only. They are not the price, rate or ratio of any real country, and we have chosen round numbers so the arithmetic is easy to follow. Suppose a home is priced at 300,000 currency units, the local norm is a 20 percent deposit, the mortgage rate is 5 percent nominal, and the term is 25 years.
- Deposit: 20 percent of 300,000 is 60,000. Loan is 240,000.
- Monthly rate: 5 percent divided by 12 is about 0.4167 percent. Payments: 25 times 12 equals 300.
- Monthly payment on those inputs works out at roughly 1,403.
- Suppose recurring ownership costs, meaning property tax, insurance and service charge, total 300 per month. Total housing cost is about 1,703.
- Suppose the lender caps housing cost at 33 percent of gross monthly income. Required gross monthly income is 1,703 divided by 0.33, which is about 5,161. Annually that is about 61,900.
The implied price to income multiple is 300,000 divided by 61,900, or roughly 4.8 times gross annual income.
| Step | Illustrative figure | What varies locally |
|---|---|---|
| Home price | 300,000 | Market level, property type, city versus region |
| Deposit requirement | 20 percent, so 60,000 | Minimum deposit rules, first buyer schemes, lender policy |
| Loan amount | 240,000 | Loan to value caps set by regulator or lender |
| Rate and term | 5 percent, 25 years | Fixed versus variable norms, maximum term, borrower age limits |
| Monthly principal and interest | About 1,403 | Repayment versus interest only conventions |
| Recurring ownership costs | 300 per month | Property tax base, service charges, mandatory insurance |
| Total monthly housing cost | About 1,703 | |
| Lender ratio applied | 33 percent of gross | Gross or net basis, stress test rate, other debt included |
| Implied gross annual income | About 61,900 |
The three assumptions that move the answer most
Run the chain three times with different values for the deposit, the interest rate and the lender ratio, and you will see that these dominate everything else. Raising the deposit to 30 percent in the example above cuts the loan to 210,000 and the payment falls proportionally, but you now need 90,000 in cash rather than 60,000, plus transaction costs. Lowering the assumed rate flatters the result badly, which is why many lenders apply a stress test rate above the contract rate. If the local supervisor requires a stress test, use the stress rate, not the headline rate, or your answer will be optimistic.
Gross basis versus net basis
A ratio of 33 percent of gross is not the same constraint as 33 percent of net. In the illustrative example, if take home pay were 70 percent of gross, monthly net would be about 3,613 and the same 1,703 of housing cost would consume about 47 percent of it. When you compare two countries, check which basis each lender uses. This is the most common error in cross border affordability work.
What the chain deliberately leaves out
- Purchase transaction costs. Transfer taxes, notary and registration fees, agency commission and arrangement fees are paid once, on top of the deposit. They change the cash you need, not the monthly payment.
- Other debt. Many lenders apply a total debt ratio as well as a housing ratio, so car loans and student debt reduce borrowing capacity.
- Income recognition. Self employment, bonus income, foreign currency income and recent arrival in a country are all treated differently by lenders, and some income you receive may not count at all.
Where to get the real numbers
Every input in this article should come from a primary source. Use the national statistics office or land registry for transaction prices, the central bank or supervisor for loan to value and debt service rules, and a written illustration from a lender or a licensed broker for the rate, term and ratio they will actually apply to you. Rules and costs vary considerably by country and even by region, and you should confirm every figure with the relevant local authority or a qualified professional before relying on it.
We publish comparisons because the arithmetic is portable even when the numbers are not. This article is informational only and is not personalised financial, tax or mortgage advice.
How to Use This Guide
Every worked example on this page is illustrative. The figures are chosen to show how the calculation behaves, not to report current market rates. Costs, tax rules and eligibility criteria differ by country and change over time, so take the method from this page and put your own current figures into it. Browse the rest of our guides, or see how we source and check our comparison figures on the about page.
Information only. This article explains how costs and rules are structured. It is not financial, tax, legal or immigration advice, and it is not a recommendation to buy any property, vehicle or investment. Confirm anything that affects a decision with the relevant local authority or a qualified professional before you act on it.
Last updated: August 14, 2026