How Debt-to-Income Ratios Affect Mortgage Applications

When you apply for a mortgage, a lender will want to know your debt-to-income (DTI) ratio before approving your loan. It’s one of several factors they take into consideration when determining whether or not you’ll be able to afford your monthly repayments.

In this comprehensive guide, we’ve gathered everything you need to know about DTI ratios, including how they’re calculated, what’s considered an acceptable DTI ratio, and how you can still secure a mortgage if your ratio is at the higher end of the spectrum.

Read on for more information or jump to the section that’s relevant to you via the links below…

What is a debt-to-income ratio?

It’s a standard measure used by mortgage lenders to determine whether or not an applicant will be able to afford their monthly repayments. More specifically, it’s the percentage of your pre-tax monthly income that goes towards paying off debt and other fixed financial commitments.

The lower your DTI ratio, the less risky you’ll appear to a lender so the more options – and typically better deals – you’ll be offered. Having said that, you can still get a mortgage if your DTI ratio is on the high side. You may just have a more limited pool of loans to choose from.

What’s considered debt?

Your lender will take into consideration any mortgages, rent payments, student loans, car loans, childcare costs, credit card debt and any other fixed monthly loan payments you have.

How do you calculate your debt-to-income ratio?

You can use our calculator to work out your DTI ratio. Simply input your monthly income before tax or any other deductions and your monthly debt payments and we’ll tell you whether lenders will consider your DTI ratio low, medium or high risk.

Alternatively, you can calculate your DTI ratio yourself. Add together all your monthly debt obligations and divide it by your gross monthly income, then multiply the figure by 100.

For example, if your monthly debt payments are £1,600 and your gross monthly income is £4,000, your DTI ratio is 40%.

What’s considered a good debt-to-income ratio?

Each lender will have its own take on what it considers to be a good DTI ratio, but generally, a lender will want the figure to be less than 30-40% to be acceptable for a mortgage.

If your ratio is slightly higher, you shouldn’t have too much trouble getting a mortgage. You may just have a smaller pool of mortgage lenders to choose from and, therefore, a more limited number of deals. You may also not be able to borrow as much.

If your ratio is a lot higher, say around the 70-80% mark, a handful of lenders will still consider lending to you. However, they’ll want to closely scrutinise your finances first.

If you have a 90% or 100% DTI ratio, securing a mortgage will be hard, but not impossible. Your best bet is a specialist lender who doesn’t heavily rely on DTI ratios when calculating affordability. An experienced broker is best placed to help you if you fall into this category.

How to get a mortgage with a high debt-to-income ratio

As mentioned above, it’s still possible to get a mortgage if you have a high DTI.

Here are three steps you can take to improve your chances of getting your application approved:

Which lenders offer mortgages to high DTI borrowers?

Plenty of lenders will consider your application if you’re a high debt-to-income borrower. This includes big names such as Virgin Money, Nationwide, Natwest and Skipton Building Society. However, there’s no guarantee they’ll lend to you. They’ll consider each applicant on a case-by-case basis and may refer some applications for more in depth underwriting before making a final decision.

Some specialist lenders don’t use debt to income ratios at all, which may better suit borrowers with high levels of debt. These include Precise Mortgages, The Mortgage Lender and Together. A broker will be able to advise you on the right lender for your circumstances.

Get matched with a broker who specialises in high DTI mortgages

Getting a mortgage with high levels of debt relative to your income can be difficult but is far from impossible. You just need to know which lenders to approach and how to frame your application. This is where an experienced broker comes in. A broker who specialises in securing loans for borrowers with high DTI ratios can offer invaluable help and advice.

Our broker matching service can connect you with an expert who will be able to review your situation and advise you on how to secure the right home loan for your situation.

Give us a call on 0808 189 0463 or make an enquiry and get matched with an expert today for a free initial conversation.