IMF Working Paper No. 19/258: Assessing Macro-Financial Risks of Household Debt in China

(PDF version)

The riskiness of household debt increased as well: between 2010 and 2016, the share of debt held by highly indebted households—with debt-to-income (DTI) ratio above 4—increased from around a quarter to almost half. While most of that debt is held by richer households, the increase in DTI ratio among the lower income households was quite substantial as well, reaching almost 6.

RBA Financial Stability Review April 2017 Box C: Characteristics of Highly Indebted Households

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There are several ways to classify household indebtedness. The approach used here is to classify ‘highly indebted’ households as those with debt-to-income ratios in the top 10 per cent of indebted households in a given survey year. Over the 10 years to 2014, most households in this group had a debt-to-income ratio above 550 per cent and as a group these households accounted for around 35–40 per cent of total household debt.

How did so many households in China and Australia end up with such a high DTI?

Since mortgage has a cap on debtors' DTI at around 55%, debtors with DTI>1 must have either taken large sums of additional non-mortgage debt, or have lost most of their income, after mortgage is approved? Could this happen on such large scale? What are the other possible causes of a country-wide high DTI?


1 Answer 1


I think there might be a mix-up in how DTI is defined by institutions like the IMF and how it is used by, e.g. banks.

I got this from this link

debt-service-to-income ratio (DSTI): The maximum DSTI ratio for housing and consumer loans is set at 40%, where debt-service (DS) is the total monthly aggregate of credit payments to financial institutions and income (I) is the documented and verifiable average monthly income of the borrower after tax and other compulsory national and social payments that the institution recognizes as recurrent.

debt-to-income ratio (DTI); The highest DTI ratio is set at 6, where debt (D) is all debt obligations of the borrower to financial and non-financial institutions (as far as it is feasible to obtain this information), including the loan to which the borrower has applied. Income (I) is the average monthly income calculated according to the requirements for DSTI and multiplied by 12.

In other words, $$ \begin{align*} &DTI = \frac{\text{ total debt}}{\text{yearly income}}\\ &DSTI = \frac{\text{total monthly payments due to debt}}{\text{monhtly income}} \end{align*} $$

Of course DTI can be higher than one as, for example, your total mortgage might amount to many times your yearly income. Your DTSI better be below 1 otherwise you can not repay your loans.

It is the DSTI that is used by banks (and called the DTI) to say that to obtain a mortgage your debt to income should be below 40%

  • $\begingroup$ +1 but your DTSI being below 1 does not necessarily mean you cannot repay your loans as you can dissave your previously accumulated wealth if there is any $\endgroup$
    – 1muflon1
    Commented Jun 7, 2021 at 16:35
  • $\begingroup$ @1muflon1 point well taken. Thanks. $\endgroup$
    – tdm
    Commented Jun 7, 2021 at 16:54

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