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Santander Eases Mortgage Affordability Rules, Increasing Borrowing Potential for Homebuyers and Those Remortgaging
Prospective homebuyers and individuals looking to remortgage may find they can now borrow increased amounts from Santander, one of the UK’s leading mortgage lenders. The bank has adjusted its mortgage affordability assessments, potentially allowing customers to borrow up to £35,000 more.
Changes to Mortgage Stress Tests
Santander has modified its ‘stress tests,’ which are crucial evaluations during the mortgage application process. These tests are designed to ensure borrowers could still manage their repayments if interest rates were to rise. Typically, lenders assess whether applicants could withstand interest rate increases of two or three percentage points above their current rate. For example, a borrower with a 4% rate might be evaluated against a hypothetical rate of 6% or 7%. Banks employ various stress test rates, considering factors such as the mortgage term.
Santander has announced a reduction of 0.75% across all its stress test rates, bringing them to their lowest point since 2022. This adjustment means numerous customers applying for residential mortgages from Santander are now eligible to borrow between £10,000 and £35,000 more than previously, depending on their individual circumstances, successful affordability checks, and adherence to loan-to-income limits.
Response to Regulatory Guidance and Market Dynamics
This policy change from Santander is reportedly a response to recommendations from the Financial Conduct Authority (FCA), making Santander the first major lender to act. The FCA had indicated that as interest rates stabilize or decline, lenders should avoid ‘unduly restricting access to otherwise affordable mortgages’. Furthering this initiative, the regulator is scheduled to launch a consultation in May, exploring methods to streamline lending regulations and assist borrowers, with the overarching goal of encouraging homeownership.
Industry Perspectives
David Morris, Head of Homes at Santander UK, commented, ‘Supporting customers in achieving their homeownership aspirations is a key priority for Santander. We recognize the ongoing impact of affordability constraints. We are pleased to be the first major lender to respond to the updated FCA guidance, alongside introducing a series of reduced mortgage interest rates, demonstrating our commitment as a responsible lender and enabling more customers to borrow the necessary funds to realize their property ambitions.’
Bob Singh, founder of Chess Mortgages, a mortgage brokerage, stated to Newspage news agency: ‘With anticipated base rate cuts now potentially delayed until the summer, this measure will be welcomed by many, ensuring market stability following the recent stamp duty activity. The enhanced borrowing capacity could be a beneficial factor and provide market support until further rate reductions occur. It is likely other lenders will follow this lead.’
However, Mark Eaton, Chief Operating Officer at April Mortgages, a lender specializing in longer-term fixed-rate mortgages, expressed caution. He suggested that increasing borrowing amounts during a period of elevated interest rates could be detrimental and potentially expose buyers to future financial strain if rates were to increase again. ‘There is a critical need for enhanced support for homebuyers navigating current financial pressures, but it must be implemented judiciously,’ Eaton stated.
‘Reducing stress testing on short-term mortgage products to facilitate increased borrowing could be a potentially imprudent strategy. A more prudent approach for borrowers would be to consider longer-term fixed-rate mortgage products. These are not subject to the same stress testing and can offer access to larger loan amounts while providing payment certainty.’