08 April 2024 , 08:06
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Santander is set to offer 40-year interest-only mortgages, extending the maximum term from its previous limit of 25 years.
This change will take effect from Tuesday, April 9, aligning it with the bank's capital and repayment deals. As part of this overhaul, customers applying for an interest-only mortgage who plan to sell their property as a means of repaying the mortgage must have at least £300,000 equity in the property, up from the previous requirement of £250,000.
In addition, Santander is updating its affordability calculations in line with changes for the new 2024-25 tax year. The bank will now consider child benefit for those earning up to £60,000 following the increase to the high income child benefit charge threshold.
It will also factor in the reduction in national insurance contributions for PAYE and self-employed applicants, allowing people to borrow more. For homeowner mortgages between £1,000,000 and £2,000,000, Santander is increasing the minimum LTV (loan to value) from 75% to 85%.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, commented: "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."
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"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."
Meanwhile, Graham Sellar, head of development, mortgages at Santander, remarked: "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."