Introduction

You may have heard of the 28% rule, a popular guideline in the US for budgeting housing costs. But does it work for the UK housing market? Let’s explore how it applies here and what you should consider when budgeting for your new home.

Disclaimer: We are not financial advisors. Always seek independent financial advice when budgeting for and purchasing a property.

What is the 28% Rule?

The 28% rule suggests that your total monthly housing costs—mortgage payments, property taxes, and insurance—shouldn’t exceed 28% of your gross monthly income. It’s a useful tool for assessing affordability and ensuring you don’t overstretch your budget.

Is the 28% Rule Relevant in the UK?

While the principle of affordability is universal, the UK housing market operates differently. Here’s why:

1. Lender Affordability Assessments
   UK lenders evaluate your income, expenses, and debt-to-income ratio rather than following a fixed percentage. Affordability is tailored to your financial situation.
2. Council Tax and Living Costs
   In the UK, council tax and other property-related costs significantly impact affordability. These additional costs must be considered in your budget.
3. House Prices vs. Incomes
   In high-demand areas like London, adhering strictly to the 28% rule may be unrealistic for many buyers. House prices often require a larger proportion of income.

How to Budget for Housing Costs in the UK

If you want to apply the principles of the 28% rule, here’s how to adapt it:

• Step 1: Calculate Your Budget
  Determine 28–30% of your gross monthly income as a starting point. For example, if you earn £3,500 per month, aim to spend no more than £980–£1,050 on housing costs.
• Step 2: Include Additional Costs
  In the UK, housing costs often include:
• Mortgage payments (principal + interest)
• Council tax
• Insurance (e.g., building and contents)
• Leasehold charges (if applicable)

Why Affordability Matters

Staying within a budget ensures you can manage other financial goals, like savings and emergencies. Stretching beyond what’s affordable can lead to financial stress, especially if interest rates or living costs rise.

Seek Independent Financial Advice

Budgeting for a property purchase is a significant financial decision. It’s crucial to seek independent financial advice to ensure your plans align with your financial goals and circumstances.

How We Can Help

At Aconveyancing, we understand the challenges of navigating the UK property market. Our team can guide you through the conveyancing process, ensuring a smooth transition to your new home.

Start planning today with our online conveyancing estimate tool to help you budget your legal fees.