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  • 02

    SEP
    2010

    Posted at 09:54

    Automated lending systems are holding back housing market

    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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    Categories: Mortgages

  • 24

    AUG
    2010

    Posted at 23:08

    'Rates at 8%? History tells us it can happen'

    'Rates at 8%? History tells us it can happen'
    By Dominic Sandbrook
    24 August 2010, 8:14am
    Most households would crumble if interest rates hit 8% and prices rose by 10% a year. But that nightmare could come true, says historian Dominic Sandbrook...
    unemployed outside a Job Centre in the 1980s recession
    Lessons from history: The last Conservative government from 1979 should remind us that rates can go up - and up, and up.
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    For most of us, it is hard to imagine that one day we might be pining for the 'good old days' of summer 2010. With the recovery faltering, the deficit yawning and the Treasury axe being sharpened, you might have thought that the present economic picture could hardly get worse.
    But if one expert's chilling prediction is right, then far grimmer times may lie ahead for British homeowners. As if they did not have to shoulder enough burdens already, they could end up facing mortgage repayments three times today's level, with horrific consequences for our economy.
    That is the bleak picture Andrew Lilico, chief economist of the Policy Exchange thinktank, painted yesterday. He believes that next year the British economy will plunge back into recession - and that the future will be even worse than most of us dare imagine.
    If Mr Lilico is right, then the economy will soon bounce back from the dreaded double-dip recession. But once recovery is under way, he thinks, then the Bank of England's quantitative easing scheme, which pumped £200bn into the economy in the wake of the credit crunch, will have terrible consequences.
    With the money supply out of control, inflation could surge as high as 10%, a level unknown in Britain since the late 1980s. And to make matters even worse, the Bank of England would then have to raise the base rate to as high as 8%, leaving hard-pressed homeowners facing mortgage rates at an eye-watering 12%. With house prices and debt at record levels, this would be a catastrophe.
    It would not only send the economy back into its third recession in five years, but would hit millions of families with soaring mortgage repayments.
    The consequences would be even more dreadful than they were in the 1980s - not merely for David Cameron's hopes of re-election, but for families up and down the country. Millions could be plunged into bankruptcy and lose their homes.
    Mervyn King presenting the quarterly inflation report
    All of this may sound fantastic today, with the economy still struggling out of recession and the Bank's base rate at a record low of 0.5%. With home loan rates at a mere 4%, many people find double-digit rates almost impossible to imagine.
    But while few economists share Mr Lilico's controversial vision, it is worth remembering that we have been here before. After two decades of historically low inflation and interest rates, we are often too quick to forget the terrible risks faced by ordinary homeowners.
    Since the early 1990s, we have allowed ourselves to be lulled into a false sense of security by an unprecedented period of single-figure interest rates. Indeed, as Gordon Brown boasted that he had abolished the age of boom and bust, millions of British homeowners gleefully borrowed from the banks, convinced that nothing could possibly go wrong.
    The reality, however, is that since inflation poses such a deadly threat to economic prosperity and social cohesion, wiping out savings and driving up prices, no government can ever afford to be complacent.
    And despite the agony for ordinary middle-class families, interest rates are the simplest and most powerful weapon against high inflation.
    Indeed, the record of the last Conservative government from 1979 to 1997 should remind us that rates can go up - and up, and up - as well as down. Soon after Margaret Thatcher came to power, base rates peaked at 17%, something most people aged under 40 find impossible to imagine.
    Even in 1982, when she had already wrung much of the inflation out of the system, the base rate was still more than 14%. And although rates fell a few years later as the economy recovered, her Chancellor, Nigel Lawson, wrecked it all by allowing the boom to run out of control.
    What that meant, of course, was the return of high inflation. And that in turn meant that interest rates went back up, too, with the base rate reaching almost 15% by the end of 1989 - with dreadful consequences for ordinary homeowners.
    Almost overnight, the bottom dropped out of the housing market. 'The phones stopped ringing and people simply stopped coming through the door,' one estate agent recalled later.
    As rates soared, some two million people found themselves caught in the dreaded negative equity trap, owing more on their mortgages than their homes were worth. In 1991 alone, almost 100,000 people lost their homes. 'We had people in our offices crying,' recalled an adviser to the housing charity Shelter.
    In the long run, of course, high interest rates did the trick. Once again shock therapy drove the inflation out of the economy, clearing the way for the great boom of the 1990s and 2000s.
    But even though Mr Lilico's predictions may prove too pessimistic, it is hard to contemplate the prospect of a return to the late 1980s with cheerful equanimity. For with Britain already battered by recession and crippled by debt, the social and economic fallout could be incalculable.
    The nightmare scenario would see Britain emerging from a double-dip recession in mid-2011 and embarking on a new burst of growth, fuelled by the Bank's quantitative easing scheme and renewed consumer borrowing.
     


    Read more:http://www.thisismoney.co.uk/news/article.html?in_article_id=512696&in_page_id=2&ct=5#ixzz0xZ0eTXKu 

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We charge a broker fee for property purchases of £397 and a remortgage fee of £196. Oportfolio Ltd fees are payable on application.

Your home may be repossessed if you do not keep up repayments on your mortgage.