Santander is set to shake up the mortgage market, by offering a 40-year interest-only mortgage, up from its previous limit of 25 years. This change will come into effect from Tuesday, April 9, as the consumer banking giant also updates its affordability criteria to reflect the falling interest rates and changes in the economy following the Spring Budget.
The change aligns their interest-only mortgage with the bank’s other capital and repayment deals. In addition to the longer term for repayment, customers applying for these mortgages who plan to sell their property as a means of repaying the mortgage, must now have at least £300,000 equity in the property, up from the previous requirement of £250,000.
The bank is also updating its affordability calculations in line with changes for the new 2024-25 tax year. Santander will now consider child benefit for those earning up to £60,000 following the increase to the High Income Child Benefit Charge threshold.
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The reduction in national insurance contributions for PAYE (pay as you earn) and self-employed applicants will also be taken into account, allowing individuals to borrow more.
For homeowner mortgages ranging between £1,000,000 and £2,000,000, Santander is increasing the minimum LTV (loan to value) from 75 per cent to 85 per cent.
Rachel Springall of Moneyfactscompare.co.uk said: “It’s positive to see lenders reviewing affordability criteria and not just the rates charged on mortgages. There may well be borrowers out there struggling to get a new loan and currently use a sizeable amount of their net income on mortgage payments if they can’t afford to switch deals.”
“Interest-only mortgages could help those who can afford to pay off the capital of their loan when it comes to an end, but its always wise to seek advice before entering any arrangement to ensure it’s the most suitable choice.”
“It’s been a bit of a slow start for mortgage rate activity in April, but there will no doubt be many borrowers seeking out a new deal if they are due to come off their fixed-rate mortgage soon.”
“Innovation within the mortgage market or a justifiable relaxation to affordability criteria to help support both new and existing homeowners will no doubt be welcomed.”
Santander’s head of mortgage development Graham Sellar said: “Home ownership is a key focus for many, but affordability can often be people’s Achilles heel.”
“Today’s changes, including opening up interest-only products for more people, while reflecting recent tax changes that improve people’s take-home pay in our affordability calculations, aim to address this and support more homeowners.”
