Santander is increasing the maximum term it offers on interest-only mortgages to 40 years and updating affordability calculations to reflect changes in the new tax year.
From Tuesday April 9, it will increase the maximum term on interest-only mortgages to bring it in line with its capital and repayment deals, up from 25 years.
Under the shake-up, customers applying for an interest-only mortgage, who also intend to sell their property later as their way to repay the mortgage, must have at least £300,000 equity in the property. Previously this was £250,000.
The bank will also make other updates to its affordability calculations, due to changes coinciding with the new 2024-25 tax year.
Santander will take child benefit into account for those earning up to £60,000 following the increase to the high income child benefit charge threshold, as well as the reduction in national insurance contributions for PAYE (pay as you earn) and self-employed applicants, enabling 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 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.”
Graham Sellar, head of development, mortgages at Santander 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.”