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Lender AIP hard checks divide broker opinion

Coventry, Nationwide, Virgin Money and Yorkshire BS still leave hard footprints

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Brokers are divided on lenders’ use of hard credit checks for agreements in principle, with some saying the practice harms customers’ credit scores and restricts access to mortgages.

Earlier this month Santander for Intermediaries announced its intention to bring in a soft credit-check process for all intermediated mortgage business.

A statement from the lender said the move would give customers “peace of mind that their credit rating will not be affected at the early stages of applying for a mortgage”.

However, John Charcol senior technical director Ray Boulger says the widespread use of hard searches at AIP is still an issue for the market.

Hard checks

Hard checks are employed by Coventry Building Society, Nationwide and Virgin Money. Yorkshire Building Society currently uses a hard check for AIPs but is in the process of changing this.

A Yorkshire BS spokeswoman says: “We regularly review the service we provide to customers and intend to change this to a soft check in the future.”

Big lenders that already conduct soft credit checks at the AIP stage are HSBC, Barclays, Lloyds, RBS, Santander and TSB. All of these use a hard credit check at application.

Boulger says brokers with clients who are struggling with affordability may want to compare several lenders when seeking the best mortgage for
them but hard credit checks at the AIP stage prohibit this.

He explains: “Because of the concern that if you do too many searches with certain lenders it will damage the client’s credit rating, you tend to err on the side of caution.”

Boulger says there is no reason why more lenders cannot do soft searches at AIP. He claims it would not cost them any more and the inform-ation they would obtain would be the same as that for a hard search.

He says: “As this is something that is going to be beneficial to consumers and not harm the lender, it’s hard to argue that it shouldn’t be done.

“Bearing in mind there is a general FCA principle that lenders have to treat customers fairly, if they are doing something that inhibits the ability of customers, or brokers on their behalf, to shop around, I think that is unacceptable.”

Hard footprint issues

Maxwell Moore director Jonathan Moore says hard credit checks at AIP stage can be a real problem for non-vanilla cases.

He says these often require more human contact from lenders, and underwriters often ask for extra information to be submitted as it would be for an AIP.

Moore says: “The risk of a hard footprint is that you end up damaging that person’s credit score.”

Brokers with non-standard residential cases may exclude certain lenders on this basis.

Moore adds: “Santander is obviously being very sensible by doing what it’s done. It will undoubtedly get more business out of it because brokers will be happier to use it on day one and use it as one of their first lines of enquiry.

“It shines a spotlight on the remaining ones that don’t use soft footprints.”

Times change

However, some brokers say the prevalence of hard credit checks at the AIP stage is not the problem it once was, especially for vanilla cases.

Chadney Bulgin mortgage partner Jonathan Clark says brokers are wary of leaving multiple footprints on customers’ credit report, and customers are increasingly aware of the problems this can cause.

“However,” he says, “a good broker should have a thorough understanding of their client’s income and expenditure and have run detailed affordability calculators before submitting an AIP.

“So, in my experience, declines are increasingly rare on more straightforward cases.”

He adds: “It’s only if a customer declares relatively modest credit ‘issues’ at the outset that I would consider a ‘soft footprint’ lender such as the Halifax, because I would feel duty bound to obtain high-street rates if at all possible before approaching a specialist lender that would invariably charge them higher rates.”

Xpress Mortgages founder Rachel Lummis thinks the AIP hard searches “definitely are a big issue” but most brokers can find a way around them.

She says: “Ordinarily, you’ve done so much research that, by the time you say ‘This is what I can get you, do you want to go ahead?’ it’s a done deal.

“I suppose, for the brokers who do a DIP here or there to try their luck, that would affect them more.”

Lender decisions

However, the question of whether to carry out soft checks at AIP stage is not always clear cut for lenders.

Moore points out that lenders in this position may find that brokers spam them with cases.

He explains: “There are lenders out there doing soft footprints that get abused for it.

“Some brokers will put all their enquiries to a soft-footprint lender just to find out how much they can borrow, and then use that as a fallback position.”

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