From Tuesday, brokers will exclusively be able to use the calculator for ‘Covid-affected’ clients who want to disregard their 2020/21 accounts because the pandemic has damaged their earnings, to find out how much the bank is prepared to lend.
The bank has changed its lending policy to exclude the 2020/21 tax year for self-employed borrowers who have suffered an out of the ordinary loss of earnings.
Covid-affected, said Santander, also refers to borrowers who have relied on one of the government’s support measures such as the Self-Employment Income Support Scheme or the Coronavirus Business Interuption Loan Scheme, or a tax deferral.
The lender said it will be taking into account future Covid-19-related liabilities and they will be treated as a business commitment.
An additional layer of criteria means that to be accepted under Santander’s Covid-19 accounts exception, businesses must have been trading for at least 90 days after reopening.
Santander revealed its criteria changes to brokers yesterday, and has been praised by the broker industry for its approach.
However, there are concerns over the impact it will have on the bank’s service levels.
Business as usual for 2020/21
If borrowers want to use their 2020/21 earnings, head of business development mortgage division, Graham Sellars said it was business as usual and brokers do not need to call unless they needed support.
Speaking to Mortgage Solutions, Sellars (pictured) said: “Half of Santander’s self-employed borrowers have not seen any impact on their businesses.
“The other half have been affected in varying ways, from being shut throughout each lockdown like hairdressers, for example, or just losing earnings in the first lockdown like tradesmen for instance. Whatever the scale of the damage, we see 2020/21 as an aberration, and not a normal trading period.”
Brokers want to see more lenders follow Santander’s lead.
Simon Butler, head of mortgages at CMME, said: “This is a strong indication from one of the UK’s largest lenders that they value the self-employed sector.
“Last year had a detrimental impact on the finances of many small businesses and the attitude across the mortgage industry has been excessively cautious at times, rather than supportive of business owners.
“We hope other lenders take note of this and review their individual criteria as there are many ways to approach adversity, as Santander have shown this week.”
Jane King, mortgage and equity release adviser at Ash-Ridge Private Finance, also welcomed the move but had reservations over how the policy would be applied in practice.
“This is a good idea overall. The self-employed have had a bit of a tough year for reasons outside of their control due to the current conditions so it will allow them to provide figures for when their businesses were running under normal trading conditions.
“Having said that, Santander will still take a view of what their likely future trading will be post-Covid and not all will pass muster, but I think it is a fairer way of judging income and so I think it’s a very pragmatic approach.”
Sebastian Murphy, head of mortgage finance at JLM was concerned that Santander’s keenness for brokers to talk through cases and a move towards more manual underwriting may put its service levels under pressure.
“This is a really positive step and hopefully other banks will join them but the communication to brokers could have been better.
“I do have concerns that this decision will drive their service levels down to the levels we had to deal with when they were underwriting self-employed applications last year.”
Until the calculator is live the bank has asked that brokers call it to discuss Covid-affected cases.
Borrowers not using a broker will need to contact the bank to discuss their circumstances.