Debt-to-income ratio (DTI)

The debt-to-income ratio (DTI) compares a borrower's total debt repayments with their income over the same period, usually expressed as a percentage. It is a quick, widely understood measure of how stretched a customer is: the higher the ratio, the more of their income is already committed to servicing debt, and the less headroom they have to take on more.

How debt-to-income is calculated

In its simplest form, DTI divides total monthly debt repayments by gross or net monthly income. A customer repaying £600 a month in credit commitments on a £2,000 net monthly income has a DTI of 30%. Lenders vary in exactly what they include — some count all credit commitments, some focus on unsecured debt, and some separate out housing costs into a related housing-cost ratio — so the definition always needs to be stated alongside the number.

• Gross vs net — whether income is measured before or after tax materially changes the ratio, so comparisons must use a consistent basis.
• Which debts count — mortgages, loans, cards, overdrafts and other agreements may or may not be included depending on the lender's policy.
• Point in time vs forward view — DTI can be measured as it stands, or recalculated to include the repayment on the new agreement being applied for.

Why lenders use DTI

DTI is useful because it is simple, intuitive and comparable across customers. It gives an immediate sense of indebtedness and is easy to explain to customers and regulators. As a screening measure — for example, flagging applications above a threshold for closer review — it is a sensible first filter.

The limits of DTI

DTI is a blunt instrument on its own. Two customers with the same ratio can be in very different positions: one with stable income and low essential costs has real headroom, while another with irregular income and high living costs does not. DTI also says nothing about the quality of income or about non-debt essential expenditure. For that reason it complements, rather than replaces, a full affordability assessment built on verified income and actual outgoings.

DTI and affordability together

The strongest approach uses DTI as a fast, consistent indicator and a detailed affordability assessment for the decision itself. Open Banking data lets a lender calculate a reliable DTI from verified income and real commitments, then go further to confirm that disposable income genuinely supports the new repayment. Used this way, DTI is a helpful signal within a richer, Consumer-Duty-aligned view of the customer.

DTI thresholds and policy

Many lenders set DTI thresholds in policy — for example referring or declining applications above a certain ratio. Thresholds are useful because they are simple and consistent, but they should be set with care and reviewed against actual outcomes. A threshold that is too tight excludes good customers with genuine headroom; one that is too loose lets through customers who are already overstretched. Because the “right” threshold depends on the product, the customer base and the definition of DTI used, it is a policy choice to be tested, not a universal constant.

Where DTI can mislead

DTI treats all income and all debt as equivalent, which hides important differences. A high earner with a 40% ratio may have far more disposable income in cash terms than a low earner at 25%. Someone with a large but low-cost mortgage looks different from someone with the same ratio made up of expensive short-term credit. And DTI ignores non-debt essentials entirely — childcare, energy, travel — that can consume a large share of income. These blind spots are exactly why DTI should sit inside a fuller affordability picture rather than drive decisions alone.

A verified, forward-looking DTI

DTI is most reliable when both sides of the ratio are verified rather than stated. Open Banking confirms real income and surfaces actual credit commitments, so the ratio reflects reality. Recalculating DTI to include the repayment on the agreement being applied for — a forward-looking rather than point-in-time view — shows the position the customer would actually be in, which is the number that matters for a responsible decision.