Mixed messages

An experiment to discover the consistency of sourcing systems\' results shows the difficulties brokers face when using them, says Rob Roberts

How consistent are sourcing systems? Does each system give the same results for the same client information or are there disparities?

I took four hypothetical clients and ran their identical details through three sourcing systems. The results were surprising. When I expected them to generate similar results they were largely disparate, and when I foresaw differences there were similarities.

I used three sourcing systems – Tri-gold Prospector, Mortgage Brain and Mortgage 2000’s Encore. I showed no preference towards any of them and in-putted the same data as far as each system’s limitations would allow.

I will refer to them as the first, second and third sourcing system in each case, but this will not correspond with the aforementioned order – i.e. Trigold won’t necessarily be system one. I don’t intend to promote one system over another but plan to highlight the problems brokers face when they input consistent information but receive inconsistent results.

My first example, Mr Jones, had separated from his wife and was re-mortgaging their house in his name to pay her off.

He wanted to borrow £231,000 against a property value of £260,000 with a salary of £60,000 a year, no adverse credit history nor unusual criteria.

He wanted a two-year fixed rate deal as his circumstances were changing and he was looking for the security of knowing what his payments would be over this period.

Sourced by the cheapest total cost over two years, the results were:
• System one: Halifax’s 5.44% with a £999 arrangement fee, free valuation and £200 cashback.
• System two: Nationwide’s 5.78% with a £499 arrangement fee, free valuation and free legals.
• System three: Halifax’s 5.49% with a £999 arrangement fee, free valuation and £200 cashback.

Not too different, but on the most straightforward of cases I would have expected three of the most notable sourcing systems to be able to come up with the same rate. But for each to give me different results made me wonder what was to come.

The second example, Mr and Mrs Smith, wanted to purchase a rental property for £166,000. They planned to borrow 85% of that, £141,100.

The potential rental income of the property was £650 per month and they were both employed, earning £18,000 and £16,500 respectively.

The couple wanted a tracker rate over two years as they thought interest rates would go up in the short term but would then level off or even reduce in the medium to long term.

They were aware that variable rates are lower than fixed rates and wanted to take advantage of this, even though they knew the rate was likely to go up in the near future.

The results were:

• System one: Chelsea’s 5.79% with a £995 fee and a £315 valuation fee.
• System two: Mortgage Express’ 5.19% with a 2% fee (£2,822) and a £345 valuation fee.
• System three: BM Solutions’ 5% with a £1,499 fee and a £405 valuation fee.

Again, three different deals but the results were massively different this time. All have merit for different reasons – or they would do but for the fact that the last product wasn’t available for these clients.

BM Solutions’ criterion is that individual applicants must have a minimum income of £25,000, which was not the case here. Good luck to brokers using that system for buy-to-let.

Case number three involved ano-ther remortgage but this time with a twist. I was looking for a split repayment and interest-only mortgage for Mr and Mrs Jacobs. Their property value was £460,000 and they wanted to borrow £400,000 with £310,000 of that covered by endowment policies.

Their existing mortgage was with Abbey at £348,000 and they were using additional funds to consolidate unsecured debts. Although self-employed, they had three years of accounts that showed they earned £60,000 each.

They were keen on a fixed rate as interest rate increases in loans of this size make a proportionately bigger difference to monthly payments, and they wanted payment security for a five-year period.

The results were:

• System one: Bank of Scotland’s 5.79% with no arrangement fee and a £565 valuation fee.
• System two: Coventry’s 5.69% with a £999 arrangement fee, a £199 upfront booking fee and free legals.
• System three: Nationwide’s 5.78% with a £499 arrangement fee, free valuation and free legals.

Again, there’s merit to all three deals but there’s a snag. I informed the systems about the debt consolidation but Nationwide only went up to 85% LTV for that purpose – more frustration for brokers.

For the final example, I looked at an adverse credit case. Mr Thomas satisfied a County Court judgement for £7,520 in August 2003 plus three defaults in 2004 worth £11,964. He wanted to remortgage his existing property, worth £170,000, to raise funds for home improvements.

Already with igroup, he had raised an extra £35,000, taking his LTV to 85%. He earned £24,050 a year. He was keen to go for a fixed rate deal over three years so he could budget effectively during that period, then review his plans at the end of the term.

The results for this case were:

• System one: Victoria Mortgages’ 6.08% with a £995 arrangement fee and a £325 valuation fee (via a packager).
• System two: First National’s nearprime 6.14% with a £799 arrangement fee and free valuation (via a packager).
• System three: Southern Pacific Mortgage Limited’s near-prime 6.24% with a £795 arrangement fee and a £200 valuation fee.

This is where we hit a wall. None of the products was appropriate for the client as he didn’t fit their criteria.

He wanted 6 x income and although these products came up as having filtered the income correctly, closer in-spection revealed that the income mul- tiples entered into the systems were only an indication of the maximum allowed.

Running the case through the lenders’ respective affordability calculators showed that none of them would offer the full amount, with the closest one still about £20,000 short.

This is a major problem and one that would cause brokers and their cli-ents serious delays.

So what have we discovered? I app-reciate that taking only four examples isn’t a conclusive sample, but let’s consider the evidence provided by the test.

The four cases were straightforward enough examples of what brokers deal with every day and the results were confusing, even contradictory.

But as I tell my team every day, sourcing systems are tools, not definitive solutions. They point you in the right direction but shouldn’t be taken as gospel, particularly considering the quality of their output.

Over the years brokers have been criticised for mis-selling scandals, poor practice and most recently, commission payments. But sourcing systems containing inaccurate information make their work harder. It’s unhelpful at best and ridiculous the rest of the time.

And if you ask the systems’ owners, they say it’s the responsibility of lenders to make sure their products are listed correctly with the appropriate criteria. Then ask the lenders and they say they have informed the sourcing systems but they haven’t done anything about it.

Until someone takes responsibility for the accuracy of data on sourcing systems, we’re always going to have problems. Whether these issues come home to roost through Financial Services Authority regulation or take some other form is a matter to be debated elsewhere.

Regardless of what happens, it’s fair to say that as wondrous as sourcing systems are, they could do so much more to help brokers offer better services to their clients. And if we can build up more trust, increasing numbers of brokers will prosper and more mortgage business will be transacted.

This in turn will only have a positive effect on the sourcing systems as there will be more products available and more opportunities for them to shine.

So come on Trigold, Mortgage Brain and Mortgage 2000, stand up and be counted. Whichever one of them grabs the bull by the horns and takes responsibility will surely dominate the marketplace in the years to come.

Rob Roberts is a senior adviser at Chesterton Grant Mortgages