I feel a certain sense of emptiness this week. This is nothing to do with my work or personal life – I can only put it down to the fact that The Apprentice has finished. I, along with the rest of the nation, will have to wait another year before watching the next batch of hopefuls vie for Sir Alan Sugar’s attention by tackling similar tasks to selling fruit, renting flats or organising group activities on a cruise ship. The US version of the show with ‘home-making self-made billionaire’ Martha Stewart – currently airing on the Discovery Home & Health channel – is not fit to lace Sir Alan’s boots. She doesn’t even say: ‘You’re fired,’ for God’s sake.
Fans of the UK show can console themselves by downloading clips from the website and enjoying once more a wealth of cringe-worthy moments. My favourite came from the show when the teams had to design and make a charity calendar. Charged with leading her team’s pitch to the calendar buyers, Nargis began each presentation with this gem: ‘Did you know that there are six million cats in the UK alone, and that most of them are in London?’ The look of incredulity on the buyers’ faces was priceless. As was the fact that she persisted with this opening gambit three times, each viewing became more excruciating. And if there had been a tumbleweed in the vicinity we would surely have seen it blow across the screen.
Since that episode, I have vowed to learn a similarly useless fact every day and will be attempting to crowbar them into every article I write. I begin today with the following offering: did you know that the world’s biggest feet belong to Xi Shun from Inner Mongolia, China and measure a whopping 13 inches? For the pedants among you, the record is for a living person, so if you know of someone dead who had bigger feet, then you’ve missed the boat.
Anyway, it occurs to me that Mr Shun, with his enormous ‘plates of meat’, would leave a rather substantial footprint. One that would take some shifting and potentially cause problems if, for example, he had particularly muddy feet (wait for it – the tenuous link is about to be established). The mortgage footprint equivalent (you’ll remember I did use the word ‘crowbar’ in the last paragraph) has also been the source of much consternation among mortgage intermediaries recently. So much so that AMI has produced a member factsheet on Credit Searches & Footprints aimed at providing information on the different types of credit search used by lenders in the mortgage process, and how they might affect a client’s ability to obtain credit in the future.
Lack of communication
With more lenders increasingly using online decisions and sophisticated product offerings, there seems to be a lack of communication with regards to which type of credit search is being conducted and at what part of the process. Each credit search conducted leaves a ‘footprint’ which, depending on whether this is ‘soft’ or ‘hard’, can be visible to those conducting subsequent searches. ‘Soft’ footprints are visible to the customer, should they look at their credit file, but are not visible to other lenders, whereas ‘hard’ footprints are.
The Financial Services Authority (FSA) is concerned that, in the age of ‘Treating Customers Fairly’ (TCF), customers who are merely shopping around for the best deal could in fact be jeopardising their ability to obtain future credit. This is because lenders may be conducting full credit searches at the ‘shopping around’ stage thus leaving numerous ‘hard’ footprints on a credit file.
This potential outcome is increasingly likely where a lender works on an ‘affordability’ basis, rather than the traditional income multiples. In this situation, it may well be the case that intermediaries have to carry out a decision-in-principle (DIP), which come with a ‘hard’ footprint, to establish the amount of money a customer may be entitled to borrow. If intermediaries are doing this for a number of mortgage lenders then the number of ‘hard’ footprints will clearly increase.
Solutions
A question that needs to be asked is: when is a decision not a decision? At present, the FSA class the carrying out of a DIP as a decision to lend. But lenders do not always view it as this. Brokers seem to be stuck between a rock and a hard place at the moment. It is likely that they will be the first port of call for their clients who will be asking: ‘How much can I borrow?’ If brokers can only find this information out by ‘DIP-ing’, this is the route they will have to follow, while explaining the potential consequences for the client.
One possible solution, for those lenders not offering risk-based pricing, is to incorporate integrated tools onto their websites. Here a broker could key in all the relevant client information, outgoings, etc, and get an answer to the ‘how much can I borrow’ question without having to resort to a DIP.
The regulator is expected to look further into the credit search/footprint issue and we may well see further information provided and greater clarification with regards to mortgage lenders’ use of footprints and their impact for the client’s credit future. Until then, AMI members can make use of the Credit Searches & Footprints factsheet which will hopefully provide some background information and answer a number of questions you might have.
AMI members can access the Credit Searches & Footprints factsheet on the publications section of AMI’s website.
