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Santander set to introduce LTI cap on residential loans

Santander for Intermediaries is set to introduce a loan-to-income cap on the majority of residential loans.

While the lender would not confirm the level of the LTI cap, a source close to the lender said it will be set at 5 times income on 25 July.

Presently, the lender bases LTI ratios on applicant credit scores but from Friday it will apply the 5 times income cap across all residential lending. This means some borrowers will find they can take a bigger loan than previously, while others will see the loan they are eligible for is smaller.

Loans through Santander’s Help to Buy range will not be captured by the LTI cap as these loans have a maximum LTI of 4.5 times income.

A spokeswoman for Santander says: “On Friday 25 July 2014, Santander is making a number of changes to its residential lending policy in line with competitors and current market conditions. 

“As we have said previously, our average new business income multiplier currently is 2.85 nationally, and in London it is 3.63 and we have no reason to believe these will alter going forward, while we continue to work within the guidelines of the new regulation.”

John Charcol senior technical manager Ray Boulger called the move “bizarre”.

Boulger says: “Up until this change, Santander has based its LTIs on an applicant’s credit score i.e. those with better credit can obviously borrow more.

“We think the impact of this will be that those with a higher credit rating, who in the past have been able to borrow up to 5.5 times income or possibly higher, will be restricted. However, people with a lower credit score can now borrow more, which seems a bizarre move.”

Last month it was revealed that from October the Bank of England will state that loans above 4.5 times income must make up no more than 15 per cent of a lender’s new lending.

Many of the high street lenders have moved to introduce LTI caps in the past two months.

Prior to the Bank revealing its new LTI rules, Lloyds Banking Group and Royal Bank of Scotland moved to cap loans over £500,000 at 4 times income. RBS has also announced an LTI limit of 4.99 times income for all buy-to-let applicants.

This week Nationwide announced that it would apply a limit of 4.75 times income across all residential applications.

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