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Automated lending 'holding back' housing market

Wednesday, September 08, 2010

Source: Catherine Deshayes

The housing market in the UK is being held back due to lenders' reliance on automated systems, Aldermore research shows...

In a survey of 200 mortgage brokers were asked what percentage of mortgage enquiries had been declined over the past six months because their clients did not achieve a sufficiently high credit score.

A massive 88% of brokers confirmed clients were regularly declined by lenders' automated credit scoring systems.

Six out of 10 say up to 20% of clients are turned down because of credit scoring and a further 29% report more than 20% of clients had been told ‘no' because of credit scoring.

Council of Mortgage Lenders' data shows that during the first six months of this year mortgage brokers were responsible for 61% of all new mortgage business, worth £33.9bn and involving 247,000 transactions.

Colin Snowdon, chief executive of Aldermore's specialist mortgage lending business, says: "Many people will be shocked by these figures, which reveal the extent to which lenders, most of whom let skilled staff go during the recession, are now overly-reliant on technology to make important lending decisions. They now have no other way of sorting the wheat from the chaff.

"The evidence we see at Aldermore suggests that banks and building societies have significantly heightened the bar which borrowers now have to clear in order to qualify for a mortgage, meaning that perfectly creditworthy borrowers are being told ‘no' on a regular basis."

Aldermore does not use credit scoring, preferring instead to let experienced underwriting staff apply sensible rules and criteria.

Snowdon adds: "Many banks and building societies have lost their appetite to lend and are using credit scoring as a blunt tool to identify only those borrowers who conform to their standardised credit profile.

"According to data published by the FSA, nearly two-thirds of all borrowers have a variable rate mortgage and are enjoying the benefits of low interest rates. However, when interest rates go up, as they will do eventually, thousands of borrowers will suffer ‘payment shock' and will find it impossible to remortgage on to alternative deals, because they do not fit the credit profile demanded by lenders' credit scoring systems.

"Lenders should take into consideration all the facts presented to them by an applicant and not use a minor blemish, such as a missed credit card payment several years ago, as a reason for rejecting perfectly creditworthy applicants."

Source: www.mortgagestrategy.co.uk