A debt to income ratio is a tool used by banks in Australia under current banking standards to protect the consumer by over-borrowing or slowing down the level of activity taking place in the property market. This tool has been introduced to the banking industry by industry regulators.
By definition a Debt to Income Ratio is calculated by way of taking your total debts divided by your gross income.

Example:
Income: $100k (gross)

Proposed Loan: $200k

Existing Loan: $100k

Visa Card: $20k

Total Debt - $320k

$320k (total debt) divided by $100k (total income) = DTI 3.2x

How Lenders Look at Debt to Income Ratio DTI?

Most lenders would look to assist a potential client with a maximum of 6x DTI, however, this is not a hard and fast rule as your broker will be able to assist you with working out which lender could help you with the best solution as some lenders in the market are able to help with a Debt to Income ratio greater than 6x or some lenders do not even look at this tool as a way to determine capacity to borrow. To give you an idea, here is a few examples:

Bank Australia – 6x

Bendigo Adelaide Bank – 6x

National Australia Bank – 7x

Commonwealth Bank – 6x

Westpac and St George – 6x

AMP – 6x

Citibank – 6x

The above are a few more of the common names we might be familiar with. As mentioned, some lenders will not consider a Debt to Income ratio DTI greater than 6x, however, this is not necessarily set in stone. Its your broker that will be able to help you understand whether there are other strengths in your financial position as to why you might still approach a lender who has a policy of a Debt to Income ratio of 6x for a number of reasons:

• Industry regulators have recommended that a lender should look to adopt a Debt to Income ratio DTI as a way to try and slow down the property market or prevent interest rate shock if interest rates start to rise. Some lenders can maintain their reporting standards by accepting proposals which are greater than 6x at the start of their reporting cycle and limiting how many they can accept throughout so by the end, they have still maintained a specific limit and satisfied industry regulators recommendations of best practice. To allow a client to borrow greater than 6x, a lender will only consider this for certain clients who have other strengths in the financial profile
• Some lenders (very few), do not use Debt to Income ratio DTI as a tool for determining a persons ability to borrow
• Strength in a persons financial position is held say in investment property or shares and a lender will look at mitigating the risk of allowing the client to borrow more than 6x if the client has capacity to extinguish debt relatively easily through non-sensitive assets; ie owner occupied property.