A quick guide on debt to income ratio for mortgages. Learn how lenders use debt-to-income ratio, what counts as a good score, and how it affects your approval chances.
Picture this: you’ve found your dream home, but when you apply for a mortgage, the bank comes back with questions about your debts.
Not just the big ones like car loans, but even the little monthly payments you’d almost forgotten about.
Together, these debts form your debt-to-income ratio – a number that lenders use to decide whether you can comfortably afford a mortgage.
Debt is common in the UK. The average household owes about £65,000, close to a full year’s income. With homeowners already spending nearly 20% of their income on mortgages, lenders want to be sure you’re not overstretched before supporting you in getting the keys.
Your debt-to-income ratio (DTI) shows how much of your income goes towards debts. For UK mortgages, most lenders see anything up to around 35-40% as manageable. Under that, you’re in good shape; over 50% and you may struggle to get approved.
That’s why knowing your DTI matters; it’s a simple measure that could make or break your application.
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What Is Debt-to-Income Ratio?
Simply put, debt-to-income ratio (DTI) measures how much of your income goes toward debt payments each month. It’s expressed as a percentage.
DTI is typically calculated using your gross monthly income (before tax). This includes your salary and any other income (like benefits or bonuses).
The debts counted include monthly payments on all credit obligations: e.g., existing mortgage or rent, credit card minimums, personal or car loan payments, student loans, child support, etc.
Everyday living expenses (utilities, food, etc.) aren’t part of DTI, though lenders consider those separately in affordability checks.
For example, a DTI of 25% would mean one-quarter of your monthly income is used to repay debts.
What Is a Good Debt to Income Ratio for Mortgages?
Generally, the lower the DTI, the better it’ll be for you to secure a mortgage.
In the UK, anything around 35-40% or lower is generally considered a good DTI for a residential mortgage.
While every lender sets its own acceptable DTI cutoff, there are general benchmarks, such as:
Under 20% DTI (Excellent): Very little of your income goes to debt. You’re a low-risk borrower with an excellent chance of approval.
20% to 35% DTI (Good): Most lenders consider this range healthy. You should find it relatively easy to get a mortgage, all else being well
36% to 49% DTI (Moderate): You have a fair chunk of income going to debts. Many lenders might still approve you, but they’ll look closer. You may need strong credit or a larger deposit as reassurance.
50%+ DTI (High Risk): More than half your income is pre-committed to debts – a red flag. Few mainstream lenders will lend freely at this level. You might need to reduce debt, or only certain specialist lenders would consider the mortgage, often with strict conditions (like a big deposit or higher rates).
Remember, DTI isn’t the only factor. Even a low DTI won’t guarantee approval if you have a very small deposit or poor credit history. But DTI is one of the critical pieces of the puzzle.
You can connect with the mortgage advisors we work with to discuss your unique situation.
Debt-To-Income Ratio for Buy-to-Let and Second Home Mortgages
If you’re not just buying your first home but looking at a buy-to-let property or a second home, how does debt-to-income come into play? Let’s take a look:
Buy-to-Let Mortgages
For buy-to-let (BTL) mortgages (where you’re purchasing a property to rent out), lenders focus less on your personal DTI and more on the property’s rental income.
In fact, the rent typically must cover at least 125% of the mortgage payment for a buy-to-let loan.
Still, your personal finances will matter, and a high personal DTI might raise red flags if things go wrong and rent isn’t paid.
Second Home Mortgages
Buying a second home (like a holiday home or a second residence) with a mortgage means you’ll have two home loans at once – and lenders will absolutely factor that in.
The mortgage on your first home will be counted in your DTI when applying for the second. That means your DTI will naturally be higher, so expect stricter affordability checks and often a bigger deposit requirement.
How to Improve Your Debt-to-Income Ratio
Don’t panic if your debt-to-income ratio is higher than you’d like. There are multiple ways you can improve your chances before applying for a mortgage.
Pay Down Existing Debts
The most direct way to lower DTI is to reduce your debt payments. Prioritize paying off smaller loans or any high-interest credit cards if you can.
Every debt eliminated frees up part of your income. For instance, clearing a £200/month car loan will instantly lower your DTI.
Avoid New Credit
Now is not the time to finance a new car or take out additional loans. Adding debt will raise your DTI. Try to postpone any non-essential borrowing until after you secure the mortgage.
Also, be cautious about spending on credit – running up card balances can increase your monthly payments (or at least how lenders perceive them).
Increase Your Income
We know, it’s easier said than done, but even a modest boost in income can improve your DTI because it raises the denominator of the equation.
Perhaps you or your partner can do some overtime, take a side gig, or otherwise increase earnings.
Sometimes, even tax-free income sources (like certain benefits or maintenance payments) can be counted by lenders, so make sure to report all qualifying income in your application.
Refinance or Consolidate Debt
If you have multiple high-interest debts, consolidating them into a single lower-interest loan could reduce your total monthly payments (lower payment means lower DTI).
Build a Bigger Deposit
While saving more doesn’t directly change your DTI, a larger deposit reduces the mortgage amount you need.
A smaller mortgage means a smaller monthly payment, which will improve your future DTI.
Plus, a bigger deposit can give you access to better interest rates, which also lowers the monthly payment.
Frequently Asked Questions
Do UK lenders have a strict maximum DTI?
There isn’t one universal rule, but many lenders get nervous once you go above 40%. Over 50% is usually a deal-breaker with mainstream banks.
Is DTI based on gross or net income?
Lenders usually use your gross income (before tax) to keep things standard.
Does DTI include living costs like food or bills?
No, DTI only looks at debt repayments. But lenders will still check your living expenses separately in affordability tests.
Can I still get a mortgage with a high DTI?
It’s harder but not impossible. You may need a bigger deposit, a co-borrower, or a specialist lender – often at higher rates. You can also connect with the mortgage advisors we work with for more information.
What’s the difference between DTI and loan-to-income (LTI)?
DTI looks at monthly repayments vs income. LTI looks at the total loan vs annual income. Both matter, but DTI shows how stretched your budget will be month to month.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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