"For those caught in the £100k–£125k income band, the sharp reduction in net income due to the effective 60% tax rate could result in significantly lower borrowing capacity than expected"
- Jo Rutland - Mojo Mortgages
In personal finance discussions, the so-called ‘£100k tax trap’ has gained attention for a clear reason. For many higher earners in the UK, crossing the £100,000 income threshold is not the milestone it seems. Instead, it triggers a steep marginal tax effect, as the gradual loss of the personal allowance creates an effective 60% tax rate on income between £100,000 and £125,140.
While the tax implications are widely known, less attention has focused on how this affects mortgage affordability. To understand the impact, we spoke to Jo Rutland, mortgage case manager at Mojo Mortgages, about how the ‘£100k tax trap’ could influence borrowing limits.
“Disposable income is the silent driver of lending decisions,” said Rutland. “Lenders don't just look at your gross income; they assess your disposable income, after tax and essential expenditures, to determine how much they’re willing to lend. For those caught in the £100k–£125k income band, the sharp reduction in net income due to the effective 60% tax rate could result in significantly lower borrowing capacity than expected. In simple terms: you may be earning more, but you’re not taking much more home, and that matters to lenders.”
How the tax trap affects borrowers
Rutland explained several potential consequences for borrowers in this income band:
Borrowers may struggle to remortgage at competitive rates if their net income is reduced, particularly under tighter affordability rules and higher interest rates.
Those seeking larger loans or upsizing might find lenders offer less than expected, as affordability assessments reflect lower take-home pay.
With living costs rising, any unexpected reduction in disposable income, including from taxes, limits financial flexibility and increases perceived risk for lenders.
“Borrowers in this income band may find it harder to remortgage at competitive rates if their net income is squeezed, especially under today’s tighter affordability rules and high interest rates,” Rutland noted. “Those aiming to upsize or take out larger loans might be surprised to find that lenders offer them less than expected, as affordability assessments reflect the reality of reduced take-home pay. With the rising cost of living, any unexpected erosion of disposable income, including from higher taxes, reduces financial flexibility, increasing risk in the eyes of lenders.”
Steps borrowers can take
Rutland advised early action and tailored guidance:
Seek proactive mortgage advice well before approaching the £100k threshold. A mortgage adviser can help prevent complications and smooth the remortgage process.
Review your affordability carefully, using an online calculator or advisor that considers real net income rather than just gross salary.
“The ‘£100k tax trap’ is more than just something that affects people's taxes, it could potentially affect your mortgage affordability too,” said Rutland. “As affordability tests become more stringent and lenders scrutinise income more closely, borrowers need to be aware that higher earnings don’t always equate to higher borrowing power. Understanding the intersection between tax policy and mortgage lending will be critical for those navigating the £100k+ income band in today’s property market.”
