Due to all the recent news about lenders increasing their scrutiny over mortgage affordability, brokers have to be extra careful about how they calculate the maximum loan a client can realistically borrow. With this in mind, I was surprised to discover the paradoxical way in which Santander deals with credit cards that are paid in full. The frustration of this becomes apparent when you realise just whose credit card is the chief culprit!

The clients in question were perhaps a little unusual in that they had a high cash flow but a low provable income. This presented a problem; the outgoings seemed disproportionately high in relation to any income we could prove. Luckily, we didn’t need to negotiate a big mortgage and the numbers fit – but only just. When it got to the underwriters, they came to the decision that the client could not borrow as much as they wanted because they had undisclosed debts, including credit cards totalling around £3,000. The clients advised these were Santander 123 credit cards they used for the cashback and were settled in full every month.
The 123 promotion from Santander is a seemingly simple and attractive cashback scheme where petrol and public transport rewards 3% cashback, 2% in department stores and 1% for supermarkets. It’s worth noting that esteemed experts, such as Martin and Paul Lewis of the BBC’s Moneybox, advocate making use of such schemes, if you pay off the card in full, suggesting that there is an added benefit in that your credit score will improve with responsible borrowing.
In the clients’ situation with Santander, therefore, you would think that a quick phone call and maybe a scan of a recent credit card bill or bank statement would straighten this out? Not the case. Santander, unlike other lenders, will take outstanding balances into account regardless of whether they get paid in full or not, taking the full payment as a commitment. Frustratingly, then, I had to declare how much they were spending on food, on essential travel and petrol and on other household items, and this would be added onto that credit card commitment. Anything that the client is encouraged to put through the 123 credit card is going to get double counted – there’s no way around it.

I got in contact with Santander and chatted with a representative about this paradox. They were aware of the issue, but felt it is the best way to get an accurate and fair representation of their clients’ commitments. In this case, the clients’ unusual circumstances amplified the compounding effect of the credit card as well as their already disproportionate income and outgoings ratio.
Santander still is one of my favourite lenders: their very detailed affordability calculator is often one of the first I will try, their rates are always excellent and their service usually slick and efficient. I am, however, left feeling bemused that they are the only bank on the high street offering such specific incentives, like paying bills on your credit card, yet also having such a punishing policy when it comes to assessing the effect that same credit card has on a mortgage balance.
Is there an answer? Perhaps not. I wouldn’t advise customers to avoid the 123 card as it has features that make a lot sense. Nor am I going to suggest that clients stop using credit cards that are paid in full either; it’s a good habit and will benefit your credit score if used responsibly. This is just one of the things to keep in mind and be aware of.