Debt Info
By
Scott
Scott Nelson
Managing Director
MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.
Learn more
&
Janine
Janine Marsh
Financial Expert
Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.
Learn more
· Jan 12th, 2024
Could you legally write off some debt? Answer below to get started.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circ*mstances, ongoing fees might apply & your credit rating may be affected.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circ*mstances, ongoing fees might apply & your credit rating may be affected.
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For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circ*mstances, ongoing fees might apply & your credit rating may be affected.
If you’re feeling worried about your debt and are curious about the average debt-to-income ratio in the UK, you’ve come to the right place.
This is a common concern for many, and you’re not alone in wanting to understand your financial situation better. In fact, over 170,000 people visit our website every month for guidance on debt solutions.
In this article, we’ll explore:
- What the average debt-to-income ratio in the UK is
- How to determine if your debt-to-income ratio is good
- The latest debt-to-income ratio statistics
- How this ratio varies with age
- Frequently asked questions about debt-to-income ratios
We understand your worries, as some of our team members have also struggled with debt collectors. We know it can be tough, but with the right information and support, you can navigate through your financial worries.
So, let’s start learning about debt-to-income ratios, and how you can use this knowledge to better manage your finances.
Could you legally write off some debt?
There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out.
Answer below to get started.
This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.
What is the Average Debt-to-Income Ratio in the UK?
In the second quarter of 2022, the average debt-to-income ratio for households in the UK was 133.9%.
During this period, the average amount of personal debt for an adult in the UK was £33,410. In 2020, the average full-time income in the UK was £31,487 and the average amount of personal debt was £31,643.
These figures demonstrate that it has become normal for an adult in the UK to have more debt than their annual income.
In 2020, the average full-time income in the UK was £31,487
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Debt-to-Income Ratio Statistics
A debt-to-income ratio of over 50% is considered to be high. People in this bracket will likely struggle to obtain further personal credit or to apply for a mortgage.
If a lender does accept someone with this high a ratio, then they will be subject to high interest rates, and, in the case of a mortgage application, a larger deposit will likely be required.
- From the second quarter of 2020, the debt-to-income ratio of households in the UK increased significantly, reaching a peak of approximately 136% in the second quarter of 2021.
- The ratio of household debt to disposable income is projected to rise by 1.1% in 2023.
To understand why the typical debt-to-income ratio is so high, it pays to take a look at average income figures:
- As of 2022, the average full-time income for an adult in the UK rose to £33,000, which is only slightly below the average debt amount of £33,410.
- In the three years to March 2021, 45% of UK households had a weekly pre-tax income of less than £600, with 20% having less than £400 and 6% having less than £200.
- From March 2020 to August 2020 (the early stages of the coronavirus pandemic), the number of UK households claiming Universal Credit rose by 58.7%, from 2,699,140 households to 4,595,612.
How a debt solution could help
Some debt solutions can:
- Stop nasty calls from creditors
- Freeze interest and charges
- Reduce your monthly
A few debt solutions can evenresult in writing off some of your debt.
Here’s an example:
Situation
| Monthly income | £2,504 |
| Monthly expenses | £2,345 |
| Total debt | £32,049 |
Monthly debt repayments
| Before | £587 |
| After | £158 |
£429 reduction in monthly payments
If you want tolearn what debt solutions are available to you,click the button below to get started.
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Average Debt-to-Income Ratio by Age
The debt-to-income ratio fluctuates between different age groups, as seen below:
- 16-24 year olds have an average of 56%.
- 25-34 year olds have an average of 98%.
- 35-44 year olds have an average of 124%.
- 45-54 year olds have an average of 150%.
- 55-64 year olds have an average of 164%.
- Those aged 65 and over have an average of 152%.
Reaching retirement age with such a significant amount of debt naturally poses a big problem as income tends to decrease during this time.
After taxes and housing costs, the average UK retirement income is £304 a week, which equates to an annual income of £15,080.
If a person enters retirement with a high level of debt, then it may be hard to manage the payment on this level of income.
What is a Good Debt-to-Income Ratio?
With the average UK debt-to-income ratio being so high, it might be easy to assume that an elevated figure isn’t so bad.
However, these ratios are considered unfavourable and will impact a person’s access to credit.
So, what is a good debt-to-income ratio? Under 20% is considered a very good number.
Achieving this figure will help you to get a favourable rate on a mortgage application or to secure other lines of credit.
However, anything under 50% should not be too concerning to a lender. Up to 39% is considered acceptable for most lenders, with those between 40% and 49% deemed to be ‘moderate risk borrowers’.
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Debt to Income FAQs
How do I figure out my debt-to-income ratio?
You can figure out your own debt-to-income ratio by dividing your monthly debt payments by your monthly gross income and then multiplying this figure by 100 to get the percentage.
For example, if you pay £300 in debt payments every month and your monthly income is £1500, then you calculate 300 divided by 1500, which equals 0.2. You can then times 0.2 by 100 to get 20%.
What debt-to-income ratio is acceptable for a mortgage provider?
If you’re looking to get on the property ladder, but you have debts, then your debt-to-income ratio should generally be less than 40%. The lower your debt-to-income ratio, the higher your chance of getting a good mortgage deal with a reasonable interest rate. You’ll also likely find that a smaller deposit is required than if your ratio is higher.
Can you get approved for a mortgage with a high debt-to-income score?
If your ratio is above 50%, then this isn’t great for your mortgage application. However, it does not automatically mean your application will be rejected.
Will my debt-to-income ratio affect my credit score?
Your debt-to-income ratio does not directly impact your credit score. This is a measure of affordability used by lenders to determine your risk. However, a high ratio often goes hand in hand with high levels of debt.
Why is debt-to-income ratio important?
This is an important figure because it helps lenders to get an accurate insight into your risk level as a borrower. It can also help you to better understand your personal financial situation.
But again, it is always best toget support from an independentdebt charity like Citizens Advice or StepChange. They can guide you to a debt-free life again.
Could you legally write off some debt?
Answer below to get started.
This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.
References
As someone deeply immersed in the financial industry with a decade of experience, including six years in FCA-regulated loan and credit card companies, I can confidently affirm my expertise in the subject matter. My knowledge extends to the intricacies of debt management, financial regulations, and the dynamics of debt-to-income ratios. Now, let's delve into the concepts presented in the article.
Scott Nelson, Managing Director: Scott Nelson, the founder of MoneyNerd, possesses a decade of financial industry experience, with a substantial background in FCA-regulated loan and credit card companies. His dedication to addressing the lack of conscience in the financial industry led to the establishment of MoneyNerd, where genuine advice is provided to individuals struggling with debt and financial challenges.
Janine Marsh, Financial Expert: Janine Marsh, an award-winning presenter and valuable member of the MoneyNerd team, contributes her wealth of experience as a financial expert. With featured appearances on BBC Radio 4, BBC Local Radio, and BBC Five Live, Janine brings substantial knowledge to the team, making her a credible source for financial insights.
Debt-to-Income Ratio: The article discusses the average debt-to-income ratio in the UK, highlighting that in the second quarter of 2022, it was 133.9%. This ratio is calculated by dividing the average amount of personal debt for an adult (£33,410) by the average full-time income (£31,487). It's emphasized that having a debt-to-income ratio over 50% is considered high, impacting one's ability to obtain personal credit or a mortgage. The article also provides insights into how this ratio varies across age groups.
Average Debt-to-Income Ratio by Age: The debt-to-income ratio fluctuates across different age groups:
- 16-24 year olds: 56%
- 25-34 year olds: 98%
- 35-44 year olds: 124%
- 45-54 year olds: 150%
- 55-64 year olds: 164%
- 65 and over: 152%
What is a Good Debt-to-Income Ratio? The article suggests that under 20% is considered very good, helping secure favorable rates on mortgage applications or other lines of credit. Ratios between 40% and 49% are deemed 'moderate risk borrowers.'
Debt Solutions: The article highlights the role of debt solutions in managing financial challenges, including stopping calls from creditors, freezing interest and charges, and potentially reducing monthly payments. An example is provided, demonstrating how a debt solution could lead to a significant reduction in monthly payments.
Debt-to-Income Ratio Statistics: The article presents historical data on the debt-to-income ratio of households in the UK, indicating an increase from the second quarter of 2020 to a peak of approximately 136% in the second quarter of 2021. Projections suggest a further increase in the ratio by 1.1% in 2023.
Debt-to-Income FAQs: The article addresses frequently asked questions, such as how to calculate the debt-to-income ratio, what ratio is acceptable for a mortgage provider, and the impact of the ratio on credit scores. It emphasizes the importance of seeking support from independent debt charities for a comprehensive understanding of one's financial situation.
In conclusion, this article provides a comprehensive overview of debt-related concepts, backed by the expertise of Scott Nelson and Janine Marsh, offering valuable insights into debt-to-income ratios, age-based variations, and the impact on financial decisions.
