Debt to income ratio

Lolly18

Hi:)

When working out my debt to income ratio it says on the nationwide website to add up monthly payments to debts then divide this by gross income (before tax? Is that rite?) then times by 100.

Is this the correct way to work out debt to income ration?

Thanks

Lolly

cado1

Yes monthly debt repayment total divided by gross monthly income e.g £1500 debts / £3,000 gross monthly income =0.5 x 100 = 50%

It varies but ideally lenders look for this to be under 40%

Lolly18

So, I add up the total payments I make towards debt each month. Not the full outstanding debt on each account?

cado1

You can do it two ways

1) Total outstanding debt / Gross Annual Income

2) Total monthly debt repayments / Gross Monthly Income

The first gives you an picture of your net financial position for debt to income, but you may wish to exclude your mortgage from this. The second gives you a view on a monthly basis and is used more as a measure of affordability and is the measure often used by mortgage lenders.

Hope this helps

Lolly18

Thanks for your help

Lolly