Santander has become the first major bank to reduce mortgage affordability rates, allowing people to to borrow up to £35,000 more. The lender has reduced the stress-test rates borrowers are checked against, which looks at whether they can afford to continue to pay their mortgage if interest rates rise.
Santander tests if borrowers can afford a rate that is about one percentage point above its standard variable rate (SVR) of 6.75%. This is today being reduced to between 6% and 7%. Santander says this means someone applying for a residential mortgage can now borrow between £10,000 to £35,000 more, depending on their individual circumstances.
David Morris, Head of Homes at Santander UK, said: “Helping customers achieve their homeownership dream is a key priority for Santander, but we know that affordability constraints continue to bite. We’re thrilled to be the first major lender to respond to the updated FCA guidance, alongside introducing a range of reduced mortgage interest rates today, fulfilling our role as a responsible lender while helping more customers to borrow what they need to release their home aspirations.”
It comes after the Financial Conduct Authority (FCA) announced it is looking into simplifying mortgage rules, which could help struggling first-time buyers finally get on the property ladder. Mortgage lending rules were toughened in 2015 after the 2008 financial crisis.
In the letter that was issued in response to the Government on the steps the FCA is taking to help economic growth, FCA chief executive Nikhil Rathi said the regulator would: “Begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.”
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The regulator said it would also work with the Government to remove “overlapping standards” such as the mortgage charter that was brought in to help mortgage holders struggling with soaring interest rates. The mortgage charter is a voluntary scheme – most major lenders have signed up to it – that offers flexible support or breathing space for people who are struggling but haven’t missed a payment.
City Minister Emma Reynolds said she will work closely with regulators to modernise the home buying process. She said: “Simplifying responsible lending rules and putting in place a permanent mortgage guarantee scheme shows our commitment to making the dream of owning a home a reality. I will work closely with regulators and industry to get this done quickly and in a way that supports as many people as possible.”
If you have a tracker mortgage, it means your deal and monthly repayments move in line with the Bank of England base rate. A tracker mortgage usually tracks above the base rate. If you have a standard variable rate (SVR) mortgage then your deal can change at any time, though they do roughly tend to move in line with the base rate too.
SVRs are generally the most expensive type of mortgage. If you have a fixed rate mortgage, it means you have agreed to pay a fixed amount each month for a set period of time. You are normally moved to your lender’s SVR when your fixed deal ends. If your mortgage is due to expire, you should compare rates now and speak to a mortgage broker to look at your options.
Generally speaking, lenders let you secure a new deal around three months in advance. If rates come down, you may be able to cancel the deal you’ve agreed to and sign up to a cheaper rate – but check with your lender before signing up first to see if there are any fees.
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