Abbey mortgages to have tighter lending criteria

By Diane Ray. Published on December 16, 2008 This post currently has no comments.

Abbey, part of the Santander Group, and one of the largest UK mortgage lenders, has announced it is to introduce stricter criteria to calculate how much new customers can borrow for their mortgage.

Abbey Mortgages

This is being done to help ensure that customers who take out Abbey mortgages now and take advantage of the current low interest rates, can still afford them when the interest rates increase again.

Currently Abbey typically uses its standard variable rate (SVR) to calculate the monthly payments for a proposed mortgage. Form this the bank can determine whether the customer can afford the mortgage. The current SVR is 5.44%.

Abbey will no longer be using the SVR, rather they will use a higher, fixed rate of 7% to calculate affordability.

For all mortgages taken out, Abbey will also be basing their affordability assessment on a repayment type mortgage, both capital and interest, and not just on an interest only basis. By doing this Abbey believe it will mean customers do not borrow more than they can really afford by basing affordability calculations on cheaper, interest only mortgages.

By tightening their mortgage lending criteria, Abbey are seeking to reduce the risk of mortgage defaults.

Other lenders are also taking steps to reduce their mortgage risks e.g. increasing the loan to value (LTV) percentage, meaning many mortgages now require a minimum 25% deposit.

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