Rules Mortgages Lenders May Not Tell You About | Debt To Income Ratio

Let’s Talk Money and Mortgages

Introduction

🎵 [Music]

Gemma: Hello and welcome back to our channel and podcast! My name’s Gemma, and here at WIS we talk about all things relating to money, mortgages, and positive money mindset.

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On today’s episode of Let’s Talk Money and Mortgages, we are joined by Ifthi.

For those who don’t know, Ifthi is a trained accountant and mortgage advisor with over 11 years of experience in the industry. He is also one of the founding directors here at WIS.

Welcome back, Ifthi! How are you doing today?

Ifthi: Hi, I’m very well, thank you.

Gemma: I’m good, thank you!

Q1: What is debt to income ratio (DTI)?

Ifthi: Debt to income ratio is actually quite simple. It’s calculated by taking all your debt and dividing it by your income.

Example:

Debt = £50,000

Income = £100,000

Debt to income ratio = 50%

When we say debt, this includes:

• Loans
• Credit cards
• Other financial commitments listed on your credit file

Income depends on your work situation:

• Employed: Pay slips
• Self-employed: Tax returns

If you’re unsure, an advisor can help guide you on how to calculate it.

Q2: What do lenders not tell you about your DTI?

Ifthi: This is where it gets tricky.

Some lenders clearly define their limits, e.g., a maximum 50% DTI.

Others are less clear and look at the mortgage application as a whole — considering merits and risks.

Key points:

• There’s no universal DTI percentage.
• Some people with high DTI may still get approved if their overall application is strong.
• Experienced brokers know which lenders are flexible and which to avoid.

Q3: How do lenders view remortgaging to settle debt?

Ifthi: Lenders view this differently:

• Some see it favorably for debt consolidation.
• Others worry if you have a history of cycling debt — paying off and accumulating new debt repeatedly.

Credit file analysis:

• Banks look at credit history over 6 years.
• Patterns like repeated high balances can affect approval.

Advice:

• Speak to an advisor before remortgaging if you have high debt.
• Going to the wrong lender can harm your credit file due to multiple credit searches.

Q4: Is there a “good” DTI?

Ifthi: There’s no defined number, as it depends on the lender.

Lower DTI is always better.

High DTI signals risk to the bank — they worry you may lose control over finances.

Examples:

• Car loans or small credit card balances are usually fine.
• Multiple high-value loans (e.g., several car loans or credit cards with large limits) raise concerns.

Rule of thumb:

Keep your DTI manageable.

Even on a salary of £30,000, debts above £15,000 may trigger lender concerns.

Q5: How do credit cards affect DTI?

Ifthi: Two important points:

• Balances count toward your DTI.
• Credit limits don’t count as debt, but banks consider them risky.

Example:

If you have £50,000 in debt and £50,000 credit limit across cards, banks worry you could double your debt overnight.

Key takeaway:

High debt + large credit lines = not a good combination.

Lenders assess merits of the case carefully.

Q6: How can people with higher DTI improve their chances?

Ifthi:

• Seek advice — an advisor can guide you through debt consolidation and mortgage options.
• Reduce debt before applying where possible.
• Avoid borrowing from parents or others to settle debt unless planned carefully.

Note:

People with high debt often fall under the vulnerable customer category.

Mismanaging this can affect your mortgage eligibility.

Q7: Can you hide debt from lenders?

Ifthi: No. Banks perform credit searches and will see all your debts.

Being transparent with your advisor is crucial.

Download your credit file before meeting an advisor to ensure accuracy.

This helps advisors give the right guidance and prevents mistakes in your mortgage application.

Q8: Are there lenders who accept high DTI?

Ifthi: Yes, there are specialist lenders, but:

• You may pay a higher interest rate or product fee.
• For high-interest debt (e.g., 15% credit cards), consolidating through a mortgage may save money.

Important:

This is case-specific advice — not suitable for everyone.

Professional guidance is essential.

Q9: Additional tips

Gemma:

• Avoid unnecessary debt while applying for a mortgage.
• Small, manageable credit usage can improve credit history.
• Example: Spend under £50 on a credit card monthly and pay it off immediately.

Ifthi: Yes — that demonstrates repayment ability to lenders and supports your mortgage application.

Conclusion

Gemma: Just a reminder:

⚠️ A mortgage is secured against your home or property and may be repossessed if you do not keep up with repayments.

If you don’t have an advisor, our WIS contact details are below — we’re always happy to help.

Thank you for joining us today! Have a great week, stay safe, and we’ll see you again soon!