This Week's Insights 05/08/2019

The Treatment of Debt in Affordability

‘Debt tolerance’ and ‘debt to income’ (DTI) ratios play a role in all lender’s affordability calculations, but how and their debt rules are applied is shrouded in mystery. After over 15,000 real life cases, we at MBT can see into the grey clouds and shed a little light on the subject.

The first challenge is that some lenders who are tight in DTI ratios don’t apply their rules until the DIP stage of the process. Clearly this increases the chance of failed DIPs which is not in anyone’s interest. Fortunately the trend is for lenders to add the rules to their affordability calculator. Virgin already apply their DTI ratio rules in their affordability calculator. This becomes obvious in large debt consolidation remortgage cases where their calculator results are significantly reduced even when the debt is being cleared by the mortgage.

Santander and Platform are widely perceived to offer low affordability for large debt cases but we see that this is often not the case, especially for larger income cases. In addition, Santander often allow a higher debt threshold for 5 year fixed rates mortgages (their calculator returns two affordability amounts as discussed in last weeks Mr Affordability). As always, the easiest way to keep up to speed is to just use MBT Affordability and let us do the work for you!

MBT Affordability Statistic of the Week…

Based on all ‘greater than 40% DTI’ cases run through MBT Affordability in the last month, the maximum affordability league table top five was: 1. Kent Reliance 2. Virgin Money 3. Santander 4. TSB 5. Skipton.

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Thank you

Mr Affordability

Lewis Lenssen