Stockton: Lenders are turning good borrowers away
Countrywide’s financial services director said demand for mortgage finance has risen considerably over the past few years but this isn’t feeding through to mortgage approvals.
Part of the reason, he claimed, is that credit scores are some 30 points higher on average than they were in 2008.
Stockton said: “Probably the most important change of all and the one that is often overlooked is credit scoring. This means that on a normal distribution a whole raft of customers who were previously able to borrow no longer qualify to be considered for a mortgage.”
He went on to suggest that banks were creaming off profits as a result.
He said: “All of this has resulted in lenders declaring higher profits for mortgage books in 2014. Look at RBS, Lloyds Banking Group and most recently Nationwide.
“As a large UK bank, you lend, you collect the margin, and you pop in place a provision – which you release in subsequent years. Product is no longer priced for risk but profit.”
His comments followed research from London and Country which highlighted that they are seeing more people than ever before but getting the same number of mortgage applicants.
Stockton said: “Demand is there but there is just no supply for those customers that don’t fit the mortgage criteria.
“Consumers who don’t have a high enough credit score are unable use just about all major lenders. A week late payment of a Sky TV subscription in the last two years now knocks you out of just about all of the main lenders.
“The lenders are operating as one. The regulators have overseen an unprecedented harmonisation of credit score and criteria. Price not criteria is now the only competition, which is what we are currently seeing with all of these price reductions.
“All of this combined means that the industry is now excluding more consumers from mortgage lending than ever before. Just 10% have a small infraction on their scorecard and they don’t qualify for a mortgage.
“So a whole host of the previously creditworthy customers are now excluded or scared to move from their current mortgage deal in case they can’t replace their credit. Low remortgage figures ringing bells anyone?”
He called on the whole mortgage industry – lenders, regulators, brokers and distributors – to recognise that the market isn’t working properly.
He added: “We should all be worried – no bad debts, only approving high credit score, no place for any minor infractions, super profit pools for buy-to-let lending and the regulator impinging on innovation and most importantly new entrants. The pendulum has swung way too far. We are now socially excluding those that we should lend to and help on to the housing ladder.”