Debt to Income Ratio for Mortgages Explained (2024)

Home

Mortgage Affordability

Calculating Your Debt To Income Ratio

One of the factors that lenders look at as part of your mortgage affordability assessment is your debt-to-income ratio. Outside of mortgage applications, this isn’t a term that is widely used, so you might not be totally sure what it means.

This guide will explain what a debt-to-income ratio is, how it is calculated, and how it affects your mortgage application. There’s also some advice on how to approach applications if your debt-to-income ratio is high.

What is a debt-to-income ratio?

A debt-to-income (DTI) ratio reflects the proportion of your monthly income that is spent on paying off existing debts, such as car finance, credit card debt, and personal loans. For example, if your monthly income is £2,000 and you spend £500 paying off debts, your debt-to-income ratio is 500/2,000, or 25%.

To calculate your own debt-to-income ratio, you need two numbers:

Your gross monthly income

This is your total income before tax and any other deductions. If you are paid an annual salary, simply divide that number by 12. If you have a variety of income types (e.g. freelance work, contract work, overtime, commission and bonuses, benefit income, pension income, spousal support, or stipend income), total them together.

Your recurring monthly debt

This is the total of all your regular monthly repayments, such as student loans, mortgage repayments, personal loans, credit card debt, car finance, etc. If you’re on a debt management plan, it would include these payments.

Speak to an expert about how your debt-to-income ratio affects mortgages

Debt-to-income ratio calculator

Input those two numbers into our debt-to-income ratio calculator to see your DTI as a percentage. You’ll also see whether your DTI is classed as low, medium, or high by most mortgage lenders.

What is a good debt-to-income ratio?

A debt-to-income ratio below 20% is considered best and might help you secure a better rate on your mortgage. You’ll be classed as a low-risk borrower who can manage their debts well.

As long as your debt-to-income ratio is below 50%, it won’t usually prevent you from getting a mortgage unless there are other weaknesses in your application. Above 50%, lenders might be concerned about your ability to manage your multiple repayments and will approach your application more cautiously.

However, lenders do not just look at your debt-to-income ratio as a number alone, they also consider the context. So, for example, they might consider loans for home improvements more favourably than credit card debt from overspending.

If your debt-to-income ratio is high but has reduced over time, they will take this into account. Or, if your debt-to-income ratio is rising for a valid reason, such as a period of illness, they can be quite understanding.

The table below gives more information on how lenders will see your DTI.

Lenders who accept high-DTI applications

Several lenders do not have a maximum debt-to-income ratio, meaning that your application will not automatically be declined on this basis. Instead, they will review applications on their individual merits, based on a wider range of affordability factors. These lenders include Leek United Building Society, Foundation Home Loans, and Metro Bank.

How a broker can help if you have a high debt-to-income ratio

Though all applicants can benefit from speaking to a broker about their mortgage, those with a debt-to-income ratio of over 50% can specifically benefit in the following ways.

Providing individual advice

A broker can explain whether lenders will view your case favourably or unfavourably. On that basis, they can recommend whether you move ahead with your application now or wait until you have reduced your debts. They may have suggestions on how you can clear certain debts quicker or make your application more attractive.

Identifying high-DTI lenders

A broker will have a full list of lenders who have a high-DTI threshold or who do not calculate your debt-to-income ratio as part of their assessment. Then, they can help you choose your preferred lender from that list and make your application.

Negotiating directly with lenders

Certain lenders consider high-DTI applications to be complex cases that require direct discussion with their team. Your broker will take the lead on that negotiation to ensure that your case is seen in the best possible light (for example, by explaining the circ*mstances behind your current debt-to-income ratio and the action you’re taking to reduce it).

Debt-to-income and Help to Buy

If you intend to use a government Help to Buy equity loan to buy a property, you should be aware that you are only eligible for this scheme if your debt-to-income ratio is below 45%. You can find out more about this scheme in our guide to Help to Buy mortgages.

The scheme uses a slightly different calculation of debt-to-income than most lenders use. It is based on your debt, rather than gross income (i.e. your income after tax and deductions). It does not include childcare and child maintenance among your debts. Credit card debt can comprise no more than 36% of your total debts.

Get matched with a broker experienced in complex debt-to-income cases

If you have a high debt-to-income ratio, i.e. over 50%, it could be a huge benefit to work with a broker who specialises in high-DTI applications. Their advice, expertise, and lender relationships could make all the difference in securing the mortgage you need.

We offer a free service that matches you with the right broker for your circ*mstances. To try it out, and connect with a specialist broker for a free, no-obligation chat, you simply need to call us on 0808 189 2301 or make an enquiry online.