Independent research commissioned by Aldermore has revealed the true extent to which the UK housing market is being held back because of banks’ and building societies’ reliance on computers rather than skilled underwriters to assess mortgage applications.
200 mortgage brokers throughout the UK 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.
The results were:
• 88% of brokers confirmed clients were regularly declined by lenders’ automated credit scoring systems
• 60% of brokers said up to 20% of clients had been turned down because of credit scoring
• a further 29% said more than 20% of clients had been told ‘no’ because they failed to achieve a sufficiently high credit score.
Data published by the Council of Mortgage Lenders (CML) confirms that during the first six months of this year mortgage brokers were responsible for generating 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, said: “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, which does not use credit scoring, preferring instead to let experienced underwriting staff apply sensible rules and criteria, says the factors which can cause creditworthy borrowers to be rejected by credit scoring systems include:
• not being on the electoral role because of a recent house move
• a recent job change
• minor historic credit issues, even if they have been satisfactorily resolved
• being self-employed
• having income from several sources
• living in rented accommodation
• never having had a loan or credit card
Snowdon added: “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.”
