Although a generally generous mortgage lender and a big name player in the UK mortgage market, Santander has come under criticism in the past for their attitude towards credit commitments when assessing mortgage affordability. However, Santander have recently announced a change to their credit card mortgage criteria, meaning hundreds of thousands of people could benefit.
Credit Commitments With Santander Mortgages
When assessing mortgage affordability criteria, there are several elements must be looked at and taken into account. First and foremost income is obviously key. If you don’t earn an income or don’t earn enough income, then you won’t be able to get a mortgage. The simple fact is that you won’t be able to afford to repay your mortgage if you don’t have an income in the first place!
Secondly, the lender wants to make sure that if you have an income, that you have enough money left over after you have paid any existing credit commitments to pay your mortgage. That means that if you have any loans, credit card balances, hire purchases or other finance that will continue to be paid monthly after your new mortgage completes, mortgage lenders will need to know how much you pay per month and the balance of the finance.
In the case of most lenders, if you are intending on paying off your loans, clearing your credit card balances, returning your hire purchase or settling the debt completely prior to completing your mortgage, then this can be disregarded at application stage. So let’s have a look at an example of how this could improve affordability with a generic lender like NatWest.
Credit Commitments Vs. No Credit Commitments Mortgage Affordability
Let’s say that a single person who earns £50,000 a year basic salary is looking to buy a property with a 25% deposit. They don’t have any children, but they do have a £300 a month car loan and £2,000 outstanding on their credit card. According to NatWest, the maximum mortgage available to this person is £229,992. Now let’s say that they are selling their car and clearing the car finance, they are also going to pay off the credit card with a bonus payment they are receiving next month. This actually boosts their maximum mortgage affordability to £247,500. And even with just removing the credit card, mortgage criteria with NatWest allows the borrower to get up to £237,616 without even paying off the car loan.
This is the case with most lenders, however Santander do things a little differently. With Santander mortgage affordability, you MUST include all current credit commitments, even if they are being cleared before completion. This means that if you are planning on paying off a credit commitment, this must be done before you apply for the mortgage. As you can imagine, this can impact mortgage affordability greatly.
Changes To Santander Credit Card Mortgage Criteria
In a message to all brokers this week, Santander have announced that they have improved their lending criteria for borrowers who pay off their credit card in full each month. That means that even if your credit card balance is £5,000 but you pay it off every month, this can now be ignored by Santander at affordability stage.
The high street lender says if a credit card balance has been paid in full each month for at least the last six months before application, this will not be included in its affordability assessment. They also say that if there has been a £0 balance on the client’s account during the latest six-month period, this counts as repaid in full for the purpose of this policy. The bank says where the balance has been paid in full each month for at least the last six months, brokers should make sure they do not enter the credit card commitment in either the introducer internet or the affordability calculator.
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