It’s a strange world. McClaren loses his job by choosing the wrong 11 names for a game. Darling keeps his for losing the financial details of 22 million names.
Within this world a lot has been written about precisely tailoring risk for an individual yet are we getting closer or moving further away from this Holy Grail?
‘Astra’ – probably better known as a learner car – is the intermediary arm of Norwich & Peterborough Building Society (N&P) that solely focuses on buy-to-let. It claims to be the first European-based lender to operate within the framework of risk-based pricing as prescribed by Basel II. Embracing the Pan-European directive, it has measured and tailored its unexpected losses more effectively and therefore allowed its capital adequacy to be more efficient.
In theory, this approach should lead to more competitive pricing for the right individual. In practice, it has become more about the general culture and accountancy practices behind the scenes.
This is highlighted by the unnoticeable change to the product appearance which remains ‘boxed up’ like every other product in the market, thereby wasting the opportunity to apply excellent pricing to the right customer.
This is probably down to systems limitations. There is also the challenge of breaking the selling culture as brokers generally prefer to have an idea in their heads than walk into the unknown that individual pricing represents. To this end, other lenders have seemingly resisted joining N&P for the moment.
Another well known product that was sadly retired forever last week was GMAC-RFC’s LIBOR-based ‘menu mortgage’. It coveted the desire to fit the mortgage to the customer rather than the other way round.
Designed with the non-conforming market in mind, it had a base charge with additions for detriments. For example, add 0.25 per cent for CCJs or arrears. It was further divided on status and loan-to-value (LTV). This, in part, took away the familiar ‘bucket’ approach that most non-conforming lenders operate.
It almost achieved its objective, but fell slightly short, as it ended up with a series of ‘sub-buckets’, typically grouping CCJs in £2,000 clusters. Refinement in this concept may have come were it not for ‘Mortgage Day’ and the need to display the endless extra permutations on the sourcing systems, which became impractical.
The other risk assessment area which has been poorly served is fast-track versus self-cert. This has become a mess because of computerised credit scoring systems.
In the past, the hand written application alone would convey signs of help, care, legitimacy and education vital to assessing a self-cert application. Now with mainstream underwriting out of the window, the leading deals are often the ones that require the least information.
Even if all brokers completed and acted on their factfinds impeccably, this ‘new world’ stance would not prevent an individual applying online. Brokers are judged on their ability to out-advise their customers. In such an example, they would appear to be putting themselves through unnecessary hoops that the lender does not require.
The desire to align risk assessment to the individual is topical but costly, so while lenders embrace efficiency we will continue to drift away from achieving this objective. As I said, a strange world? Or was it a funny old game?
Mainstream
Leeds BS has now added shared ownership to its online proposition.
Northern Rock’s ‘Together Now’ could limit the unsecured loan element from £30,000 to £15,000 depending on the credit score.
Buy-to-let
Derbyshire BS has migrated its buy-to-lets to its specialist intermediary lending arm, Salt.
Within BM Solutions’ buy-to-let range, 30 new products have been brought in at each of the three existing rental tiers. Rental incomes are now calculated on the product payrate throughout the entire range.
Kensington has removed its option to assess buy-to-lets on a self-certified earned income basis, rather than rental income.
CHL Mortgages has reduced its LTV maximum to 85 per cent.
N&P become the latest lender to reduce its new build flat limit to 70 per cent LTV.
Money Partners has increased to its rental cover to 120 per cent and the minimum advance to £50,000.
Self-cert
CHL Mortgages has removed the self-certification option from its right-to-buy lending.
Salt has reduced first buyer self-cert to 80 per cent LTV down from 90 per cent LTV.
Adverse
Kensington has withdrawn its own adverse range and the range it was providing to Bank of Ireland.
GMAC-RFC has removed its darkest plan Level Four and its LIBOR Menu. Money Partners has reduced its debt to income ratio to 45 per cent along with its arrears tolerance. Automated valuation models are also temporarily suspended.
Accord Mortgages, Salt and UCB Homeloans have all reduced their LTVs. The former also now requires CCJs to be registered for a minimum of three months, and has withdrawn its five-year fixed rates.
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