Debt to income (DTI) ratio, sometimes known as debt tolerance, plays a decisive role in the affordability calculations of all lenders, but how these debt rules are applied by each lender is shrouded in mystery.
At Mortgage Broker Tools, we have already processed affordability calculations on more than 15,000 real life cases since launching and this volume of data has provided us with an unprecedented level of insight to shed a little light on the subject.
The first challenge for brokers is that some lenders that are more restrictive on DTI ratios do not apply their rules until the decision in principal (DIP) stage of the application process.
Clearly this increases the chance of failed DIPs, which is not in anyone’s interest.
Fortunately, many lenders do add DTI rules to their affordability calculator, which provides brokers with more accurate information earlier on in the process.
One example of a lender that includes DTI considerations in its affordability calculator is Virgin Money.
This becomes obvious on large debt consolidation remortgage cases where the calculator results are significantly reduced, even when the debt is being cleared by the mortgage.
Santander and Platform
Santander and Platform are widely perceived to offer low affordability for cases where the client has a large amount of debt, but the evidence we have seen from cases run through MBT Affordability shows that this is often not the case, especially where the clients have high levels of income.
Another insight we have uncovered is that Santander often allows a higher debt threshold for five-year fixed rate mortgages.
The Santander affordability calculator provides two affordability results to show the different loan amounts it could offer on five-year fixed rates compared to shorter terms.
Every case is unique, of course, so carrying out full affordability research for your clients will be the best way of ensuring you are able to secure them the loan size they want.