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Santander slammed over ‘absurd and worrying’ pensions stance

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



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. This issue needs to be addressed ASAP. This is causing such a problem for the more mature population being able to either obtain the mortgage required or provide affordable repayments. There needs to be an industry standard that we do not need to include pension contributions especially with auto enrolment coming into force shortly.
    The lenders are constantly changing the goal posts on what we should include or exclude and makes things very difficult for us brokers in placing cases.
    It would be worrying to think that our borrowers may be tempted not to take a pension out for fear of this impacting their borrowing capacity.

  2. Christine Brightwell 11th February 2015 at 11:24 am

    Perplexing. If £ goes into a pension arrangement it is not available to pay the mortgage.

  3. It’s an interesting conundrum and some previous articles seem a little polarised.

    If someone doesn’t save into a pension but wants to ‘max out’ their mortgage then that could lead to serious financial implications later down the road – either due to the risk of taking on excessive debt or finding out they can’t live the life they want when they retire.

    If someone saves into a pension and then, as a result, can not meet lending criteria then IMHO that suggests they are living beyond their means.

    The question should not turn to stopping the pension given the aforementioned point, but perhaps educating them that their funds are finite and perhaps taking on less debt is potentially the best solution whilst still building up funds for the future?

  4. You cannot use the pound twice so the stance is correct.

  5. Nail duly hit on head by Christine.

    So what’s the right response? Focus on current discretionary income only, counting pension as non-discretionary? (“Penalising pension savers”)
    Or give pension savers extra credit for being prudent money managers, by counting pension conts. as discretionary?

    Or some middle way? Generally my favourite and Santander seems to have had a go at this, but in a way that seems to have delivered an illogical and randomly unfair result and still attracts the same criticisms from both sides of the argument.

    Given that current expenditure is only a snapshot in time which becomes less relevant as circumstances change, and mortgage repayments tend to reduce as a proportion of income, how a bit a very pragmatic simple middle ground solution, acknowledging none of this is an exact science anyway:

    How about including only 50% of contributions as committed expenditure? Not accurate for either side of the argument, but pragmatically simple and workable and fair to all. A dirty work around, yes. But one that should all come out in the wash?

  6. It seems pretty simple to me. Use net income AFTER ALL DEDUCTIONS.

  7. There appear to be four separate issues here.

    1. What the regulator allows
    2. How firms wish to underwrite their loans
    3. What advisers think is fair
    4. What the politicians want to be seen to be done

    There is clearly some interpretation required in the first. However, given that there are plenty of lenders not including pension contributions and the regulator is well aware of this and hasn’t reacted, the answer seems patently obvious. Lenders who claim it must be taken into account are probably hiding behind the rules as an excuse for a decision they want to make anyway (see point 2).

    Providing the first one is complied with then, it’s then up to the lender who they lend to and why. There are many factors that drive this, including commercial (too strict and you won’t have anyone to lend to).

    Advisers can think what they like but it’s not their money that’s being lent out.

    As for politicians, they just want their constituents off their back.

    The regulator has clearly created rules which purport to control the underwriting process (and as a result have removed choice from, occasionally stupid, consumers – but let’s work to the lowest common denominator, eh?) rather than leave it to commercial forces. That was their choice, but they and their politician friends shouldn’t be surprised by the results. The FCA want firms to consider ‘Conduct Risk’ but what about ‘Regulation Risk’? Oh, yes, it’s less urgent when you’re not accountable…

  8. Absolutely 100% the correct stance to take. If pension contributions are being made then it is an expense, plain & simple. And a necessary expense.

    It’s time we stopped fiddling the system to allow extra borrowing as ultimately this just inflates house prices even further, something the country definitely doesn’t need as young people fruitlessly toil to save a deposit.

  9. Do not do mortgages any more but, going back to the 1970 and 1980’s all out goings were taken into account.

    If you were lending your money, would you not want to know the bottom line, net income to access affordability.

    The issues will come to a head when interest rates rise and many will not be able to afford their mortgages.

    There is little point anyway as it could be 3..5 x gross or 5 times net income, which is best, who knows, am dam sure the regulator does not.

  10. This problem is as a direct result of the Politicians and Regulator thinking they know better than people working in the FS industry AND the experiences learnt by the advisers working before and after stakeholder came in. We were heavily involved in workplace pensions between 1998 and about 2005 and the conclusion we came to was that where the employer made a matched contribution to a GPP, auto enrolment was needed as there were still idiots who just didn’t return their forms for a year or so to enter. What wasn’t necessary and is a burden on small businesses was compulsory employer contributions. Usually those who failed to enter the group schemes were idiots who thought they knew better, those intending to leave the employer in the near future (why should the employer waste money on them when they have already decided not to stay) or the few already in financial difficulty who had taken on too much debt and pension.
    I agree with Grey Area, this is a problem of the Quangocrats own making an ignored by product of NOT listening to those doing the job and understanding the human nature of consumers sometimes from bitter experience for them (and sometimes for us)

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