Automated lending systems are holding back housing market
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The housing market 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.”
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Readers' comments (18)
Dark Haired Underwriter | 1 Sep 2010 1:00 pm
Whilst automated systems may reject "unusual" applications the bigger issue is that of funding for the mortgage lenders. An automated system will accept or reject what it told to accept or reject. Likewise so will the traditional manual underwriters. With limited mortgage securitisation available both manual underwriting and automated systems will be required to reject anything that potential funders may regard as being less than perfect.
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Maurice Edgington | 1 Sep 2010 1:14 pm
Would anyone like to name the worst lenders in these automated situations. It is all well and good to give numerative information but there is nothing like telling people who is actually involved to get some pressure applied.
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Anonymous | 1 Sep 2010 1:15 pm
Some credit scoring systems of lenders are seriously flawed. Northern Rock is a prime example where their credit scoring system does not pick up addresses correctly when the address is a flat. Therefore cases are being declined simply because the system does nopt recognise an address. We have cases replaced from Northern Rock to Halifax which has gone from a fail to an A pass. This is simply not acceptable and lenders need to have a look to make sure the decisions their systems produce are correct if they are relying on them to lend.
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the philospher | 1 Sep 2010 1:32 pm
Well said the dark haired underwriter. To criticise automation is lazy - we are all aware that this can throw up anomalies and is not perfect (but is proven to be more effective than manual decisions in may scenarios). With a massive liquidity gap for funding lenders will use a number of techniques for deciding where they place their loans. Rate is one option, small historic arrears may be another whether interpreted by a computer or an underwriter.
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andy | 1 Sep 2010 1:32 pm
Translation: Following a global financial crisis predicated mainly on the inability of borrowers to pay back borrowed money, many lenders are now declining to lend money to people who may not pay it back.
As a Vested Interst in the mortgage market, we would like to see this changed and a return to the halcyon days of lending criteria being no more advanced than the ability to fog a mirror.
PLease, pretty please.
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Iain Stephen | 1 Sep 2010 2:06 pm
In reply to Maurice Edgington, I had been a Barclays customer for 44 years and last November they turned down my application to take out The Mortgage Works, on my existing mortgage which had been running for 3 years, with a repayment 50% lower than the then current The Mortgage Works repayment, with an LTV of below 50%. They had seen every single financial transaction I have ever done since opeing my first bank account at 17 YOA and I currently have 10 different accounts, private and business with Barclays, but they will not be there much longer. Exactly as quoted in the article, no experienced staff and an easy way to lose good customers. Istayed with TMW paying 50% of my previous payment. Complete bunch of muppets in the Mumbai underwriting centre.
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the philosopher | 1 Sep 2010 2:10 pm
Well said the dark haired underwriter. To criticise automation is lazy - we are all aware that this can throw up anomalies and is not perfect (but is proven to be more effective than manual decisions in may scenarios). With a massive liquidity gap for funding lenders will use a number of techniques for deciding where they place their loans. Rate is one option, small historic arrears may be another whether interpreted by a computer or an underwriter.
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Victor Meldrew | 1 Sep 2010 2:25 pm
Andy you are repeating the same tripe that the gutter press and politicians have spouted. Yes there were problems but they were in the US not the UK and our arrears and repossessions have stood up remarkably well and that includes the securitised deals even though they have been administered by over zealous firms.
It was the unregulated mortgage market in the States and the fraudulent way they were packaged and rated that caused the bubble to burst. That is not to say that there wasn't excessive credit in the UK but a closer look should be made at how easy it still is to get credit through credit cards before making sweeping statements about the UK mortgage market.
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stuart | 1 Sep 2010 4:16 pm
i am finding lenders are inconsistant.
75% ltv remortgage approved Coventry 2 months back - with 1 late payment on Nationwide mortgage.
just been turned down on a safer (in my opinion) 50% ltv remortgage with no late payments due to Credit Score. they even turned down the appeal.
just put through with Halifax today - A pass and valuation already done.
how can we do our jobs properly if lenders are constantly tweeking things so its a gamble if borderline cases go through?
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Anonymous | 1 Sep 2010 5:26 pm
Here's are some more scandalous headlines about the housing market that no media have yet picked up:
SHOCK NEWS - House Prices Overvalued By Up To 40%!
BREAKING NEWS - Pioneering Research Suggests House Prices May Not Always Go Up
HOT OFF THE PRESSES - Allowing People To Declare Their Income Might Not Be The Best Mortgage Strategy
...
House Seller Actually Drops Asking Price In Light Of Deepest Recession For 60 Years
...
Home Owner Actually Admits Current House Prices A Bubble
...
etc etc
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