Santander’s decision to lower its affordability rates across all of its residential and most of its buy-to-let products has been welcomed by mortgage brokers and described as “a return to normality”.
The decision by the lender to reduce the level at which it ‘stress tests’ mortgages came into effect yesterday (December 14).
A stress test is applied to a mortgage borrower’s application to check the borrower’s ability to repay their mortgage at a given interest rate, even if the actual current rate is lower.
When measuring affordability for buy-to-let mortgages, lenders will also require a ‘buffer’ in rental income, usually at 125 or 145 per cent.
This is done to ensure a borrower has enough surplus income from the property to pay for repairs, non-payment of rent and other eventualities like service charges.
Following the fall-out from September’s “mini” Budget many lenders increased the level at which they stress tested mortgages, with brokers at the time flagging that it would make borrowing more difficult for first time buyers and would leave buy-to-let investments unviable.
The announcement from Santander means that individuals will be able to borrow more than before although the lender was scant on details of the change.
Mortgage broker Benjamin Blyth, director of Houz Mortgages noted that although the change is positive, Santander has “not given much away about what exactly has improved”.
For buy-to-let mortgages, borrowers can still expect an affordability rate of 8.25 per cent for less than five year products and a rate of 7.25 per cent for a five year fixed mortgage.
“Could they be one of the first lenders to remove the stress-testing element of mortgage affordability? Those with a very good memory will recall at the start of 2022 that 'mortgage borrowing would get easier' because of the removal of this rule by the FCA.
“Prudently, not many lenders actually changed their policy on it because it's simply a good test to ensure borrowers can afford their payments if rates increase,” Blyth said.
Other brokers were in agreement with Blyth that the move is a positive one.
Lodestone Mortgages & Protection founder, Craig Fish said the move is a “clear indication of lenders' ability and willingness to lend and confirms that the mortgage market remains open for business”.
“It further confirms lenders are in a much stronger position than they were back in 2008, and that the future looks positive,” Fish added.
Some in the industry noted that the move could signal that the lender does not expect the Bank of England to increase the base rate by as much as first thought.
This was the view of broker Jamie Lennox, director at Dimora Mortgages who also pointed out that the move may signal “that fixed mortgage deals may continue to fall for a period of time, and that we are over the worst of it”.
Others were less enthused by the announcement.
Riverside Mortgages owner, Lewis Shaw said it merely brings Santander in line with other lenders.