How Does the Debt Ratio Determine Your Borrowing Capacity?
The notion of debt ratio became central after the decline in mortgage loans following the financial crisis. Today, banks rely heavily on this indicator to assess your borrowing capacity. The debt ratio compares your regular income with your recurring expenses. The higher the share of your income already committed to repayments, the lower your capacity to take on a new mortgage.
The notion of debt ratio became central after the decline in mortgage loans following the financial crisis. Today, banks rely heavily on this indicator to assess your borrowing capacity. The debt ratio compares your regular income with your recurring expenses. The higher the share of your income already committed to repayments, the lower your capacity to take on a new mortgage.
Concretely, the debt ratio measures the portion of your income that will be used to repay all your debts, including the future mortgage. A balanced ratio ensures that you still have enough disposable income to cover your day‑to‑day living costs (housing, food, transport, unforeseen events) without financial stress.
Your broker will analyse your situation in detail to determine whether your current and future financial obligations remain compatible with a safe mortgage loan. This approach enables you to define a borrowing plan tailored to your profile rather than simply accepting the maximum amount theoretically granted by a bank.
Typical Target Ratios
- Single borrower: around 35–40% of income dedicated to debt repayments.
- Couple (married or cohabiting): often between 40–55%, depending on overall income.
These ranges are indicative and can be adjusted when the household income is particularly high, provided that the borrower can easily meet monthly repayments.