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Santander’s background BTL criteria change leaves brokers puzzled

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  • 03/12/2019
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Santander’s background BTL criteria change leaves brokers puzzled
Santander’s decision to increase the rental coverage calculation for residential mortgage borrowers with buy-to-let properties in the background of the application has left brokers scratching their heads.

 

The bank said it would apply a “simpler calculation” to buy-to-let properties that sit in the background of a residential mortgage application to work out if the property is self-financing.

The rent needs to cover the higher of 145 per cent of the declared mortgage payment or 145 per cent of the bank’s stressed mortgage payment at a rate of 5 per cent.

If there is a surplus of rent once the calculation has been applied, it can be used as secondary income as long as property is already let out and the rent isn’t received in a foreign currency.

Angela Blakesley, senior buy-to-let and residential mortgage specialist, The Buy To Let Broker, said: “Given the changes in the rental coverage expectations for buy-to-let mortgages, it’s no surprise lenders would review their expectation of background properties for residential applications too.

“What is surprising is that Santander would increase its coverage expectations on the residential side beyond what they expect for most of their buy-to-let applications.”

Blakesley said that Santander had been market-leading in relaxing its stress testing for like-for-like mortgages and its five-year fixed products prompting other lenders to follow its lead.

But she added: “Clients who have completed a recent buy-to-let mortgage with the bank could now find their own Santander buy-to-let mortgage to be deemed not self-financing when they apply to Santander for residential finance.”

Marcus Robinson, managing director of Mortgage Style, said he was pleased the bank had simplified the way it calculated rental coverage for background properties because previously it was “long winded”.

However, Robinson said there were a number of scenarios where it would appear the bank used a more lenient assessment of rental coverage on buy-to-let applications than it did on residential applications.

He added: “It would have been better for them to be more lenient on the background buy to lets instead.”

Other criteria changes include the treatment of mortgage-free properties that are already let. In this case, Santander will take 15 per cent of the monthly rent to cover the cost of running the property. Surplus income can be used to support the mortgage application.

Dominik Lipnicki, director of Your Mortgage Decisions, said: “On the surface of it the Santander change can be positive as it gives borrowers the ability to use excess rent toward affordability. Taking off just 15 per cent of the rent towards the running of an unencumbered property is also lower than others.”

Santander said the changes it has made to buy-to-let and second property criteria have streamlined the calculation it uses to assess affordability in underwriting. It uses a simple interest rate, which it said makes it easier for brokers to submit the right information and for the bank to process the application. Prior to introducing these interest rates, Santander asked for itemised details of all individual payments made to cover the running costs of the property, for example ground rent.

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