Mortgages.scot

I have had a question regarding the amount of debt a lender will tolerate when it comes to approving a mortgage.

Currently, I have quite a bit of debt, each account I have is no more than a couple of grand but I have about a dozen accounts, mail order, catalogue and so on. All up to date though, no missed payments. Will this cause issues as I have so much?

An interesting question as there is an element to this question that may cause an issue for you and others. But, in the main, a lender will not view you any differently to someone who has little or no outstanding debt. That is, as long as your accounts are up to date and it all fits within the affordability assessment there should be no issue.

Debt to Income

The one area which could affect your application is Debt to Income or DTI for short.

To calculate your DTI it is simply a case of dividing your total monthly payments to the debt you have by your gross income.

You did not provide any details, but if you were paying out £800 per month in debt payments (including your proposed mortgage payments) and had a gross income of £3,000 then your DTI ratio would be 26.6%.

Would that be a concern to the lender? Possibly. I know some lenders treat anything over 20% with some level of caution. That does not mean they will refuse to lend, however, it may mean other areas of the affordability assessment is affected.

A lender may allow you to borrow 5 times your gross income in normal circumstances but if you have a DTI above 20% they may reduce that to 3 times in order to compensate for the higher overall debt levels.

I have an affordability section here, your question has prompted me to update it to be clear on elements such as DTI and the effect it can have.

Investopedia has a good article on DTI with a lot more detail.