Lending criteria. 1 P a g e

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1 Lending criteria Section Page Acceptable intermediaries 2 Additional secured borrowing 2 Administration fees 2 Adverse / impaired credit 2 Affordability / income requirements 3 Buy to Let 4 Construction 5 Credit checks 5 Deposits 6 Employment 7 Ex-Council / local authority properties 7 Flats 7 Higher Lending Charge (HLC) 7 Income verification 8 Interest only 10 Lender / Landlord references 10 Lending in/ into retirement 10 Loan to Value (LTV) 11 Mortgage term 11 Own insurance charge 11 Procuration fee 12 Property 12 Property location 13 Recent construction 13 Remortgage legal fees incentive 14 Right to Buy 14 Society postcode operating area 14 Solicitors 14 Standard valuation fees 14 Tenure 15 Verification of identity 15 This lending criteria is for the use of mortgage intermediaries and other professionals only. People who do not have professional experience of mortgage products should not rely on this lending criteria. This is not a financial promotion and should not be displayed as such. 1 P a g e

2 Acceptable intermediaries Intermediaries that are appropriately authorised by the FCA or are an Appointed Representative of an authorised firm. Intermediaries will be required to register online and will be verified. Additional secured borrowing Additional secured borrowing is offered as further advances. This service is available on products which are available at the time of request and is subject to normal lending criteria. A further advance administration fee of is payable. Please note that no procuration fee is payable on further advance applications. A re-valuation will be required when the new total loan exceeds 60% of the recorded valuation. Administration fees A list of the Society's mortgage administration fees can be viewed by clicking here. Adverse / impaired credit Where a credit check reveals a less than satisfactory credit history the case will be declined. CCJs outstanding CCJs settled Defaults Arrears/ Late Payments t accepted Applicant s with one or more CCJ s within the last three years with a value greater than 500 will not be accepted. t accepted whilst unsettled. Settlement evidence will be required. Applicant s with one or more defaults within the last three years with a value greater than 500 will not be accepted. Applicants will not be accepted where their cumulative payment shortfall at any point reached three or more monthly payments within the last two years. 2 P a g e

3 Bankruptcy IVAs Previous Repossession Debt Management Plans A discharged bankrupt person will be considered providing evidence shows the discharge occurred a minimum of three years ago. Chief Executive approval required. Max 70% LTV. A discharged IVA person will be considered providing evidence shows the discharge occurred a minimum of three years ago. Chief Executive approval required. Max 70% LTV Applicants who have previously had a property repossessed may be accepted subject to the repossession having taken place more than 5 years ago, maximum LTV 70% & clear credit history since the repossession. Head of Underwriting approval required. Considered, providing evidence shows completed 3 years ago. Affordability / income requirements We will require 3 months bank statements which will be reviewed and we will use this information to work out how much an applicant has left at the end of the month after their expenses (including the stressed mortgage payment). To meet our affordability criteria, the amount at the end of the month i.e. the monthly surplus must be greater than 0. We all know that interest rates can go up and down. We want to make sure that our borrowers can still afford their monthly repayments if interest rates do go up. Therefore the mortgage payment we use in our affordability calculations is based upon our standard variable rate + 1.1%. This is to ensure the mortgage is still affordable taking into account the impact if interest rates were to rise in line with market expectations over the next five years. We also assume the repayment method is 'capital and interest'. Where the amount to be borrowed is not known or the applicant does not have all the information to hand to allow a full breakdown of their monthly income / expenditure, income multiples may be used as a guide to affordability. Our basic guidelines for income multiples are; 4.5 x Joint. 3 P a g e

4 The following financial commitments must be deducted from the basic income before applying the multiplier; Hire purchase Personal loans Overdraft Credit/Store cards Child maintenance 12 x monthly payments deducted from the gross annual income. 1 x monthly payment used in the net monthly expenses. 12 x monthly payments deducted from the gross annual income. 1 x monthly payment used in the net monthly expenses. 3% of the outstanding balance x 1 for net monthly payment. Net monthly payment x 12 to be deducted from the gross annual income. 3% of the outstanding balance x 1 for net monthly payment. Net monthly payment x 12 to be deducted from the gross annual income. 12 x monthly payments deducted from the gross annual income. 1 x monthly payment used in the net monthly expenses. Buy to Let The property must be able to achieve a minimum interest cover ratio (ICR) of 130% for basic taxpayers and 145% for higher taxpayers. We will accept personal income to support their BTL application where the ICR is less than 145% but greater than 130%. A full affordability assessment must be undertaken. The interest rate used for stress testing the ICR will be the higher of the pay rate +2% or 5.5%. The tenancy must be by way of an Assured Shorthold Tenancy for a minimum term of 6 months. The maximum number of buy to let properties with us or any other lender is 3. t available on current local authority or ex-local authority homes. LTVs are product specific up to a maximum 70%. 4 P a g e

5 Builder Incentives Cashbacks Stamp Duty Legal Fees Valuers Fees Fixtures & Fittings Moving Costs n-financial / In-kind Incentives (e.g. white goods/kitchen appliances, furniture/furnishing) Construction Traditional construction types are generally accepted, that is: Walls - brick, render or stone, cavity or solid. Roofs - pitched with either tile or slate covering. The following non-traditional construction types are NOT acceptable to the Society: Prefabricated Reinforced Concrete Large Panel Systems Steel Framed / Steel Clad Timber (Properties constructed entirely of timber are not accepted by the Society. However, modern timber framed properties are generally accepted by the Society). Flat Roofed (Such properties are generally not accepted by the Society. However, such properties that have a pitched roof covered with mineral felt may be acceptable to the Society.) Credit checks All applications will be subject to credit checks on the applicants' addresses to cover the previous three years. Self-employed applicants will be checked under both their personal name and also their trading name. If there is no record of residency, explanations and proof of residency for the previous three years will be required. 5 P a g e

6 The Society does not operate a system of credit scoring. Applicants are credit checked using Equifax and all applications receive the individual personal consideration of an underwriter. Deposits Builder Gifted Deposits Family Gifted Deposits Subject to confirmation by valuer Concessionary Purchase (Family) (please state if you require the applicant to put down their own personal deposit, or can you use the gifted equity as the whole deposit) Would you allow the family member selling the property to remain an occupier of said property post completion? Concessionary Purchase (Landlord) (please state if you require the applicant to put down their own personal deposit, or can you use the gifted equity as the whole deposit) subject to usual consent to mortgage form subject to written confirmation Concessionary Purchase (Employer) (please state if you require the applicant to put down their own personal deposit, or can you use the gifted equity as the whole deposit) subject to written confirmation Concessionary Purchase (Vendor) (please state if you require the applicant to put down their own personal deposit, or can you use the gifted equity as the whole deposit) subject to written confirmation 6 P a g e

7 Employment One year's employment history will be required and employment must have been with the current employer for at least six consecutive months and the applicant(s) must be a permanent member of staff. Contract workers should be referred to the Society for further consideration. Ex-Council / local authority properties Properties must have a minimum value of 60,000 and subject to maximum LTV of 80%. Flats The Society will only consider applications for loans where the property is a purpose built leasehold flat or a property converted into leasehold flats. Where the block is more than 4 stories high, the case should be referred to the Society for further consideration. Applications will not be taken on former local authority flats, houses used previously as a domestic dwelling now converted into flats, maisonettes or flats/apartments above a shop or other commercial premises. Foreign Currency Lending The Society will accept applications from individuals who are UK residents and paid in the following foreign currencies up to a maximum LTV of 75%; Euro US Dollars Australian Dollars Chinese Yuan Saudi Riyals UAE Dirhams Please note the income used for affordability purposes once converted in to sterling will be reduced by 20% for the Euro, US Dollars, Australian Dollars and 30% for the remaining currencies. 7 P a g e

8 Higher Lending Charge (HLC) (When Charged) If the mortgage LTV is above 80% up to a maximum of 95% a HLC is applicable (subject to a maximum advance of 400,000). A administration charge is also payable. The HLC is added to the loan on completion (providing the maximum LTV allowed under the product is not exceeded) and can be paid if the borrower wishes to do so. From time to time the Society will pay the HLC on behalf of the borrower as a product incentive. Please check individual product details for further information. LTV Base Premium % IPT Premium including IPT Maximum Advance % , % , % , % ,000 Income verification/ Affordability The last 3 months bank statements will be required in all instances. Employed (new loans 80% or less LTV): The three most recent pay slips may be accepted, provided the year to date figure shown on the pay slip verifies the calculated income. (Where the pay slips do not verify the annual income, an employment reference will be sought independently of the applicant). The net income shown on pay slips must be verified against the information shown on recent bank statements. Income Guaranteed income Regular income 100% if guaranteed. Subject to confirmation on last 3 pay slips + P60 and/or employment reference as confirmation. Under 80% LTV- 100% subject to confirmation on last 3 pay slips + P60 and/or employment reference as confirmation. Above 80% LTV Confirmation of the last 3 years income will be sought. Providing the variation does not exceed 25% year on year an average may be used. Should it exceed 25% the lowest figure will be used. 8 P a g e

9 Self-Employed (n limited companies) Average of the drawings or net profit achieved in the last 3 years and on the assumption that income figures indicate gradual improvement year on year. Where income is not showing a trend towards improvement or where a large variation occurs between sets of annual accounts (more than 25% from one year to the next), a lower figure typically 80% of the average will be used. Bonus/ Commission (please indicate if you accept quarterly/ annual bonuses) Overtime Car Allowance Location/ Cost of Living Allowance (e.g. London Weighting) Maintenance (if yes, does it need to be Court Ordered or CSA) Maternity Pay Foster Carers Income Bursary Scholarships/ Grants Rental Income Probationary Periods Length of Time Employed Zero Hour Contracts Future Income (e.g. pay rise/ promotion/ new job) if guaranteed if guaranteed if guaranteed if guaranteed - Court Order required Individual Circumstances reviewed Individual Circumstances reviewed 50% of gross rental One year's history required and with current employer for at least 6 consecutive months & permanent member of staff Depends upon nature of work & how long for Individual circumstances reviewed. All cases are robustly assessed and underwritten based on affordability. This is done by asking the applicant to complete a detailed breakdown of their monthly income and expenditure along with providing their last 3 months bank statements. Expenditure will include monthly payments towards financial commitments in addition to normal household expenditure which will be assessed for reasonability. 9 P a g e

10 Interest only Interest only mortgages are only acceptable where the LTV does not exceed 70%. In all cases applicants will be required to have a plausible credible repayment strategy in place. Evidence to support the plausibility of the repayment strategy will be sought and recorded on the mortgage file. Should evidence not be available or prove inconclusive, the application will not proceed on an interest only basis. Lender / Landlord references For all new borrowers with applications of 80% LTV or below, where there is an existing mortgage, details on the credit search may be used to confirm a satisfactory payment record. If the current mortgage cannot be located on the credit search or the applicant has been living in rented accommodation, then a copy of the most recent mortgage statement or rent book will be required. Proof of payments by way of bank statements or rent receipts for the last 6 months will also be required. For cases in excess of 80% LTV a satisfactory payment record we require the last full mortgage statement and the last 3 months payments. For cases were they rent we would required evidence of the last 3 months payments together with a landlords reference. Lending in/ into retirement The Society will NOT consider interest only loans which take the borrower into retirement or where the borrower is in retirement. We have assumed the retirement is the current state retirement age. Lending in retirement max 70%. When applicant is lending into retirement the maximum LTV 80%. Applications may be considered on a repayment basis where the loan does not extend beyond the age of 85 for either applicant. Loan to Value (LTV) Residential (Standard) 95% product specific BTL (Standard) Product specific 70% New Build Flat (Residential) New Build Flat (BTL) New Build House (Residential) New Build House (BTL) 95% product specific 70% product specific 95% product specific 70% product specific 10 P a g e

11 Mortgage term The maximum term is 35 years (subject to a Higher Lending Charge where the LTV is over 80%). There may be occasions when the term of the loan requested takes an applicant beyond their anticipated retirement date. We will assess the applicant(s) plans and ability to maintain payments into retirement with confirmation of their retirement income obtained in all instances. Where possible evidence will be sought and retained on the mortgage file. Own insurance charge The Society requires buildings insurance to be in force as a condition of the mortgage. The Society offers competitive household insurance, although it's not compulsory that it is taken out through Darlington Building Society a quote can be obtained by contacting any of our branches. Applicants are free to make their own arrangements and the Society will accept all major insurers. Procuration fee The Society currently pays 0.35% of the mortgage advance on the majority of it's mortgage products. Please check individual product details for any procuration fee exclusions. NB a procuration is not payable on ported products/ amounts. Self Employed: For contractors, in addition to the below your most recent pay slip (which will confirm the net income for affordability calculation purposes) an employer s reference will be sought independently of the applicant for all loans. Min. Trading/Accounts Required Declining Profit Considered? Latest Years Acceptable (If no, is it a 2 year Average or 3 year Average?) Ltd. Company - Acceptable Income (e.g. NET Dividend or NET Profit (before Tax) or NET 3 years Individual circumstances 3 years, if majority shareholders 11 P a g e

12 Profit (after Tax) + Salary) Ltd. Company - Retained Profit Considered? Online Tax Calculations & Tax Year Overviews Accepted (as opposed to SA302) Accountants Computerised Tax Calculations acceptable? (e.g. as opposed to HMRC Online Tax Calculations) Accountants Qualifications required Max. Age of Accounts Max. % shareholding to still be classed as Employed yes We like to see the last 3 yrs and would expect them to be within the last 18mths as a max Under 33% but we tend to use and accountant to complete the reference to indicate what the income is Property Flats above Commercial Premises Ex-Local Authority House Ex-Local Authority Flat Studio Flat/ Maisonettes Flying Freehold Freehold Flat Share of Freehold Length of Time Remaining on Lease Tyneside Lease no, considered subject to 80% Max LTV, considered unless Tyneside flats 85 years from inception of the mortgage Max. Stories (Flats) 4 Max. Number of Kitchens Local Occupancy Clauses max but it would rely on the valuer if he suggested it would cause the property to be unmortgageable Individual circumstances will dictate 12 P a g e

13 Second Residential (if acceptable, what is the max. LTV, how is the existing mortgage assessed (e.g. payment or balance) and what is an acceptable purpose e.g. dependant relative, holiday home etc.) Holiday Home Agricultural Ties Max. Land Acreage Annexe (if acceptable, do you also allow for no internal adjoining door and more than one kitchen) Sub-Let (e.g. rent out excess land to farmer, let out spare room(s) or Annexe as Holiday Let) Min. ownership period of Vendor (e.g. in a purchase scenario, do you require the current owner to have owned the property for a minimum period of 6 months before considering an application from a prospective buyer) Prefabricated Reinforced Concrete Japanese Knotweed Single Skin Construction Other n-standard Construction but only available to immediate family members of the applicant. Will Consider As long as no commercial usage Will consider Property location The Society will only consider mortgage applications for properties located in England & Wales. Recent construction Properties to be covered by a warranty provided by NHBC, Premier, LABC, Build- Zone, Castle 10, Protek, Q Assure, AEDIS or Architect Certificated, if constructed in the last 10 years. 13 P a g e

14 Remortgage legal fees incentive enact Conveyancing Limited will be acting for Darlington Building Society with the legal aspects of a remortgage when a customer takes a product with free legal fees as an incentive. Right to Buy The Society will consider applications for people wanting to buy their homes under 'Right-to-Buy' legislation. Society postcode operating area The Society's geographical lending area is England and Wales. However, the Society's local operating area is defined as the following postcode areas: DL, TS, DH, YO, HG, SR Solicitors Solicitors must be appointed to the Society s panel which requires the satisfactory completion of a questionnaire. The Society does not accept sole practitioners. Standard valuation fees Valuation fees are payable upon application and cheques should be made payable to Darlington Building Society. Failure to send in the valuation fee with the mortgage application will slow the mortgage application process down. Valuation administration fees are included in the total amount payable. Purchase Price*/ Valuation Standard Valuation Fee ( ) Up to 100, Up to 200, Up to 300, Up to 400, Up to 500, Homebuyers/ Scheme 2 ( ) * The fee charged is normally based on the purchase price of the property at the time of the inspection. If the price you are paying is preferential, or it is not known at the time of inspection, we will charge the fee based upon the valuation figure. ** Where a loan is made on condition that the property is completed or that certain work is done, a reinspection is 14 P a g e

15 Up to 600, Up to 700, Up to 800, necessary and the appropriate fee will be charged. Fees apply from 9 vember Up to 900, Up to 1,000,000 Up to 1,500,000 Up to 2,000,000 Additional borrowing / Reinspections ** Tenure Approved categories are: Freehold houses Leasehold houses / flats Commonhold Minimum unexpired lease should be 85 years from the inception of the mortgage. Verification of identity For all new loans, the identity of the applicant(s) will be verified in line with Money Laundering Regulations. Mortgage applications must be submitted with original documentation accepted for ID purposes or copies of documentation (each item duly certified as a true copy). 15 P a g e