Brokers have hit out at Santander for “discriminating” against prudent borrowers after the lender said it would count auto-enrolment pension contributions as part of its affordability checks.
Talks are ongoing between the mortgage industry and the Government over lenders’ different stances on whether to take into account pension contributions when assessing affordability. Nationwide and NatWest Intermediary Solutions are the only major lenders to exclude pension contributions altogether.
In a recent note sent to brokers, seen by Money Marketing sister-title Mortgage Strategy, Santander appeared to roll back on its strict criteria, saying additional pension saving would be excluded from the affordability checks as long as it appeared separately on an applicant’s payslip.
But the lender added while “discretionary” deductions would be excluded, if applicants said they would opt out of their company pension to help with affordability, the application would be rejected.
A spokeswoman for Santander says: “As a responsible lender, we must ensure the customer can afford their mortgage. We allow customers to state they would cancel some payslip deductions linked to savings and share schemes but we consider a pension to be a committed expense.”
Pensions minister Steve Webb has asked lenders to provide evidence on whether paying into a pension makes a borrower a better credit risk. He says: “I welcome this [move by Santander] as a step in the right direction but my over-riding concern is nobody should be encouraged to stop paying into a pension scheme in order to secure a mortgage.
“Choosing to save for a pension is a clear mark of financial responsibility and I would like to see further efforts made across the mortgage industry to better acknowledge this in lending policies.”
Perception Finance managing director David Sheppard says: “For a major lender like Santander to not acknowledge that a consumer can opt out of any pension is absurd at best; at worst it’s genuinely worrying.
“Pension contributions should work in favour of applicants from the lender perspective because clearly that is someone who is managing their financial future.
“Lenders should be more concerned if someone wasn’t saving into a pension.
“Santander’s move may help to a degree but pension contributions need to be completely removed from affordability assessments and lenders who don’t do that are discriminating against the financially prudent while favouring those with a more laissez-faire attitude.”
Your Mortgage Decisions director Dominik Lipnicki adds: “The fact is, excluding a whole section of society that is paying into a pension seems ridiculous when you should be relaxing the whole approach to contributions. Santander may have helped a minimal amount of borrowers with this minor change but it’s more of a posturing move than anything of any substance.”
1 October 2014: Money Marketing reveals some brokers are considering advising people to opt-out of their pension scheme as a result of lenders’ negative stance towards auto-enrolment contributions
29 October 2014: Pensions minister Steve Webb writes to the Council of Mortgage Lenders and the Association of Mortgage Intermediaries saying he is “deeply concerned” some lenders are penalising borrowers who save into a pension
6 November 2014: Money Marketing reveals lenders are refusing to back down despite pressure from Government and the industry
29 November 2014: Webb plans meeting with mortgage sector trade bodies and laments their “unintelligent” stance on the issue of pension contributions and affordability
16 January 2015: Webb demands evidence from lenders on whether paying into a pension makes a borrower a better credit risk