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Why the National Insurance hike could impact your mortgage application

Written by: Lana Clements
Santander is updating its mortgage affordability models to factor in the National Insurance hike and the added pressure facing households amid the cost-of-living crisis.

The lender will factor increased National Insurance, household expenditure and dividend income tax rates, as well as changes to Scottish tax bands into its affordability.

In September last year, Prime Minister Boris Johnson announced NI would increase by 1.25% in April 2022 to fund social care, while he also said a 1.25% rise in dividend tax would be introduced.

Now Santander has told mortgage brokers that its affordability calculations would be adjusted to reflect these changes from Wednesday 6 April, coinciding with the new 2022/23 tax year.

Five-year fixed, like-for-like remortgage and retained property residential stress rates are to be raised too.

Santander confirmed all full mortgage applications submitted by close of business on Tuesday 5 April will be based on its current affordability rules.

Lender changes to affordability is expected as the cost of living changes, according to Imran Hussain, director at Harmony Financial Services.

He said: “With living costs spiralling out of control and National Insurance and dividend income tax rates rising, it should not come as a surprise that lenders will have to adjust how much they will allow people to borrow.

“They have a responsibility to ensure all borrowing is affordable. Some have done so already, while others are doing so.

“If anyone is in a position that they are unable to borrow when they come to remortgage, depending on the lender there may be options to switch products.

“However, the value of advice at this point will be more important than ever before.”

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