More hurdles for mortgage applicants

mortgageindustryinsider

most people are aware that different lenders have different criteria when it comes to what amount they will lend you and what products they will give you based on your credit history.

Anyone who has a mortgage is normally aware that some lenders will lend more than others but generally speaking you need to have a relatively clean credit record to access high street lenders. Now however it appears things are changing, and not for the better in my view.

lenders (many of them) are testing a new filtering model called credit indexing which simplistically looks at the variable credit agreements you have (credit cards, overdrafts etc) and if they are at or near limit (different lenders set the bar at different levels) then even though you might earn enough for the lender to say your mortgage is affordable and even though you might have a totally clean credit history the lender may reject you if you just happen to be near the limit on your cards at application.

Think about this (which personally I find really shocking)

1/ The company that has developed this (experian) has used customers data (I believe most consumers expect them to hold and manage data not to process it into models... regardless what the small print says) to produce a model which is causing a large number of application failures.

2/ The lenders do not reveal this is in operation voluntarilly becasue they fear people not applying to them, yet they are delivering a number of unnecessary credit searches against customers files (Unnecessary in the sense that customers would not apply if they thought they'd fail and the lender could now publish the data to help the customer make that decision but choose not to)

3/ The lenders are pushing this as a contributor to responsible lending but unfortunately it doesn't quite work in practice as well as it does in principle. For instance imagine you were doing some work on the garden, in the home or wrestling with school fees, you knew you had a bonus coming or your savings were just about to unlock from a fixed rate deal, or you simply chose to hold savings for flexibility... and therefore ran your two credit cards up to the limit.

What would happen under this new credit indexing system is that you'd run a high risk of failure, even though all you were effectively doing out of choice is using your credit facilities to tide you over... your net position would be no better if you had chosen to pay the money with savings, and as I see it if you paid off the debt with your savings and then reapplied a month or so later you would not fail as a result of credit indexing.

Whilst any effort by the lenders to promote better responsible lending is to be appluaded. Personally I have severe issues with both how this new technique was developed and indeed is being implemented. if lenders are convinced of its rightness they should not refuse to publish what they doing, and they should also improve the situation so it looks at customers net position, looking at available limits is a very crude tool indeed.

be interessted to see if Martins picked up on this.

Note: I operate in the mortgage market and have operated in senior financial services positions generally for getting on for two decades. Please do not however take this as guidance, I am merely venting my spleen at what I see as a pretty abysmal new initiative that I feel is being introduced very poorly. If you are applying for a mortgage with a high street lender, you could at least ask them if they operate credit indexing before submitting the application.. at least then you'd be able to make an informed decision.