This is our take on what is currently happening in the mortgage market. Our views
are often cited in several national publications, including; The Times,
Telegraph, Financial Times, FT Adviser and Daily Mail, as well as a number of
key trade publications, so this should keep you ahead of the curve. If you have
any questions on any of these stories, or would like further information,
please do not hesitate to get in touch.

This week we discuss:

  • Signs of normality in the lending environment? – Santander updates affordability rates
  • Are Lenders becoming worried?

Signs of normality in the lending environment – Santander updates affordability rates

This week, Santander reduced all residential and most buy-to-let affordability stress rates, allowing clients to borrow more than before. Whilst we welcome this change and it’s a sign of normality in the lending environment on the horizon, limited details have been revealed on the extent to the changes.

As many will remember earlier in the year, the Bank of England confirmed they were withdrawing affordability tests, a test which assessed prospective borrowers’ ability to repay a mortgage. Few lenders made significant adjustments following this, and as the year progressed, affordability calculators have become more stringent in the increasing rate and inflationary environment. We hope this change by Santander encourages other lenders in the same direction now rates have reduced slightly.

Affordability Calculators

More stringent calculators have been a limiting factor for borrowing ability, particularly for buy-to-let mortgages. Now that fixed rates have fallen slightly, Santander has reversed some of their stricter affordability calculations, giving borrowing extra flexibility.

Despite this change though, most borrowers will find they are still more limited compared to years gone by. We continue to find that clients are restricted more so by affordability than income multiples, compared to the opposite a few years ago.

Are lenders becoming more worried?

Despite the positive attitude towards Santander’s latest change to affordability, are lenders still worried?

The latest change from TSB would suggest so, as since the 12th of December, they have paused new build lending at 90% loan-to-value and surprisingly reduced loan-to-income (LTI) for self-employed individuals from 5.00 times to 4.49 times income.

What does this change mean?

In our view, this change implies that TSB is concerned about the future economy, possibly around house prices falling and negative equity (although they are still lending at 90-95% for second hand homes). Possibly TSB have looked to protect themselves in the lending-sphere by implemented similar measures as they did during the pandemic.

The increased cost of new builds and fears of property price corrections has made lending on new builds riskier. According to lenders, we hear with new builds there is often a ‘shiny factor’ in the price from the expensive integrated white goods and the high quality of the new build. The premium on pricing could easily be washed away as demand falls with growing fears of negative equity.

We are surprised by the changes to LTI as one could expect self-employed business to be more agile in this changing time. We hope other lenders do not adopt similar criteria.

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