Santander has announced updates to its residential affordability rates which come into effect on 6 April, including a 1.25 percentage point increase to the national insurance and dividend income tax rate and changes to Scottish tax bands.

As part of the updates, which coincide with the start of the 2022/2023 tax year, household expenditure figures will be updated to reflect the most recent ONS (Office for National Statistics) data.

Rates will also increase for Santander’s five-year fixed, £4£ remortgage and retained property residential stress rates.

The lender’s affordability calculator will be updated to reflect the announced changes.

Santander also announced updates to its residential lending criteria to include what to do where an applicant has just one name, a revised question on cladding, a clarification on maximum product LTVs and a clarification on the evidence required for foreign nationals.

Reacting to the updates, Shaw Financial Services’ founder and mortgage expert Lewis Shaw says: “With lenders now really starting to tighten their belts, we could easily see a scenario where over-leveraged borrowers with big mortgages may struggle to remortgage as lenders’ affordability models are adjusted in line with tax rises and the cost of living crisis.

Shaw suggests that business owners who pay themselves in dividends “will be at particular risk, being squeezed from every direction”.

As living costs continue to increase and national insurance dividend income tax rates rise, Harmony Financial Services’ director Imran Hussain says “it should not come as a surprise that lenders will have to adjust how much they will allow people to borrow”.

“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,” Hussain adds.

Meanwhile, Simple Fast Mortgage’s principal Rob Peters comments: “The affordability noose is being tightened, the big question is who will hang first? After a period of super-low interest rates where some borrowers have leveraged debt up to their eyeballs, there are almost certainly going to be some casualties in the coming years as current fixed rates end and borrowers feel the string of increased mortgage costs.”

“Whilst it’s unlikely that in isolation the increases in dividend tax or national insurance are going to create high net worth mortgage prisoners, there are certainly a number of moving factors currently at play in the economy, which make it hard to clearly predict who is most at risk,” Peters adds.