Credit Utilisation vs Debt-to-Income

LondonBuyer2024

Hi all,

I’m wondering if anyone can help me. I will be applying for a mortgage within the next couple of months and will have £9000 of credit card debt (69% utilisation), which does not look good, however:

- My partner and I’s joint income versus debt repayments gives us a conservative DTI ratio of 33%

- My debts only equal about 15% of my yearly salary

- Our deposit will be over 10% of purchase value

- Our agreement in principle is saying we could borrow at least £100,000 more than we need

This whole process is very confusing and anxiety inducing, could anyone help me make head or tail of the above. Thank you!

ACG

As with anything in our industry there is no definitive answer. 
Some lenders are quite interested in utilisation. 
Some lenders are quite interested in DTI. 
Some are quite interested in both and others do not really care so long as it fits affordabiltiy. 

If you are having anxiety over it, speak to a broker. Most people think our job is a price comparison service but the reality is that we spend a lot of our time offering reassurance, keeping on top of things on your behalf and hopefully removing some of that anxiety. 

I think you will be fine though. 

Brie

The bank's concern will not be the specific amount of debt you have but whether you can afford the mortgage, the debt and your other normal expenses.  

If your agreement in principal says you could borrow £100k more then they aren't going to be concerned about £9k of debt, at least in my opinion.  fyi - my last house purchase I was questioned about the £60k of debt we had but because the LTV was small it didn't really bother anyone.  (well except me)

If you have some time before the application why not pop over to the debt free wannabe board and fill out a statement of accounts (SOA).  You could then post it back there and see what helpful advice people could offer on how to lessen the debts sooner rather than later.  

fergie_

What lenders tend to do is to use their own figure to decide how much income is required to service the debt and then reduce your affordability accordingly.

If you declared all the debt(s), when you did your AIP, there shouldn't be an issue.

If in doubt, check with a broker, run the figures through an affordability calculator with the lender you are planning to use - or even speak to them directly.

LondonBuyer2024

Thank you for your help!

I was hoping I could ask one more question, and it might be silly.

I have been paying over my minimum monthly payments to try and clear some debt (about double a month), but was wondering if this will have a negative impact on my DTI? Or are lenders able to see the minimum payments required for each debt?

ACG

If you are paying over the minimum, why would that be a negative? (sorry, just wondering if I am missing something). 

Lenders cant see what the minimum payment due is. They will know if your paying less than that as it will show as arrears. But I dont think there is a downside to paying down your debt quicker than the minimums, it will cost you less in the long run. 

LondonBuyer2024

Sorry, I probably explained incorrectly. I’m concerned that they will think that the amount for my DTI score will be the amount I am currently paying, but in reality I am paying over the odds now, and I’m concerned that will impact our affordability score, if that makes sense.

Hoenir

Focus on reducing the debt owed. Rather than overthinking what algorithms lenders may apply to your credit file history. Lenders frequently relax/tighten their criteria. As it's commercially sensitive information. It's never published.