Another large High Street bank has decided to impose a limit on borrowers looking to take out new mortgages. A Santander spokesperson announced a ‘loan to income’ (LTI) cap on most of its residential mortgage deals. The limit is based upon a multiple of the provable income used for a mortgage application, and it follows similar announcements from some of the largest lenders in the High Street.
A statement from the bank offered the following explanation for the cap: “Santander is making a number of changes to its residential lending policy in line with competitors and current market conditions.”
Santander becomes the latest household name to apply guidance from the Bank of England around lending limits, particularly designed for large loans in London and surrounding areas. The move follows Lloyds Banking Group and RBS over previous weeks, with the latter even imposing an LTI cap on buy to let mortgages in an unprecedented move.
Santander’s policy change now means that three of the six largest mortgage lenders in the UK now carry an LTI cap, and others are expected to follow suit in due course to make the cap a norm. This will slow down the amount of mortgages granted, and achieve the aim of the bank of England to slow down house prices.
Sat Singh, Managing Director of specialist broker Contractor Mortgages Made Easy, commented on the changes and what this means for contractors looking to buy a new home in the near future.
“For those contractors looking to buy in and around London, there has always been an issue around lenders ignoring a large part of the contract income and limiting where they can buy as a result of reduced borrowing ability. For example, defining the income of a limited company contractor via their salary and dividend draw, will ignore a large part of their overall income.”
“These latest moves by most of the High Street will compound the issue, particularly given that many of the lucrative contract opportunities are in the capital, and many choose to live close to where the work is.”
Singh went on to examine the impact of increased regulation of the mortgage industry in recent months, with October bringing in even more that will penalise contractors who look to approach their own bank as the first port of call to address borrowing needs.
“The Mortgage Market Review has seen a record number of would-be borrowers driven towards mortgage brokers rather than waiting three weeks for a consultation with their bank. The regulator sees proper advice as the way for a consumer to obtain a mortgage. Given the tighter affordability assessments and lending caps, it is becoming more and more difficult to navigate a successful route to an offer of funding that meets the borrower’s expectations.
“The current lending climate will get trickier before it gets any easier. October will bring affordability assessments where the lender has to apply a loading on the interest rate to factor in future rate increases. All of this means that anything other than bespoke underwriting via the gross contract rate can be a short-cut to an unwanted lending decision.”
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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