Lenders tighten criteria at the start of 2016

Christina Hoghton
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Christina Hoghton

Two lenders, TSB  and Santander, have announced trighter lending criteria in the first month of the year.

TSB said last week it will increase the interest rate it uses in its buy-to-let borrowing assessment, effectively meaning landlords will need to be able to afford their mortgage at an even higher rate of interest for their application to be accepted.

This notional rate of interest – designed to give a bit of wiggle room in the affordability calculations – has increased from five times income to 5.5 times for those borrowing more than 65% of the property’s value.

Lower LTI cap from Santander

Santander has lowered its loan to income cap for residential customers borrowing over 80% of the property’s value.

The cap was previously set at a maximum of five times gross income but was reduced to to 4.45 times income from last week.

The lender said the move would allow customers access to an affordable level of borrowing, while protecting them from borrowing beyond their limits.

There are no changes to the LTI cap for first-time buyers which is already set at 4.45 times income.

A spokesman for the bank said: “As a responsible lender, we have reviewed the maximum income multiples (also known as loan-to-income ratio) for customers seeking to borrow between 80 and 90% of the value of their property. This change reflects our continued, prudent approach to lending and affordability and is in line with current market conditions.”

Banks have started to limit income multiples on lending after the Bank of England published new rules to constrain new lending at LTI ratios at or above 4.5 to no more than 15% of the total number of new mortgage loans at a firm.