CML reveals rise of new underwriting techniques
Results from a survey of lenders undertaken at the turn of the year show that:
– Nearly half of all lenders now use credit scoring, compared with only 10 per cent before 2000. Lenders in the sub-prime market are more likely to have a credit-score model than mainstream lenders.
– Over half of all lenders now use an affordability model compared with under 10 per cent six years earlier. Nearly all lenders with an affordability model say that regulatory guidance was the major driver for this change.
– Two thirds of lenders expect to be using an affordability model within the next few years.
– Automated valuation models are an even more recent innovation. The proportion of lenders using them rose from close to zero in 2003 to around 30 per cent at the end of 2005.
One of the key reasons for using automated systems is to speed up the decision-making process. Almost 70 per cent of large lenders, 38 per cent of medium-sized lenders and 33 per cent of small lenders reach a decision in principle about the applicant within 10 minutes.
Bob Pannell, CML head of research and information, commented: “This very useful research will help lenders to better understand why there is a move towards automation, how fast it is progressing, and the extent to which manual systems are being retained. Overall the market picture is one of a hybrid system, where even the same lender may use both automated and manual underwriting processes for different cases.”