Name: Andrew Montlake
Company: Coreco Group

Over the last few years, I have made it my aim to embrace and understand technology, as it is imperative to harness it effectively for successful growth.

Although some lenders have been quicker to employ effective technology, others have been dragged kicking and screaming into the digital age.

What most seem to agree, however, is that automated systems are generally incredibly effective in identifying risky clients.

For brokers, online systems have revolutionised the process, with instant decisions speeding up applications no end.

Sponsored

Aldermore Insights with Jon Cooper: Edition 9 – Why lending strategy is becoming more central in buy to let

Sponsored by Aldermore

However, it is easy to see why this credit-scoring system is both a blessing and a curse, with many an expletive echoing round the office when an easy online system moves into the third hour of trying to submit an application.

The days of pen and paper in front of a client seem nostalgic, and there is something positively decent about writing a letter in support of an application.

The problem faced with credit-scoring systems, as far as brokers and clients are concerned, is that they can be turned up and down at will.

So the same applicant can be declined one week and accepted the next, without any real explanation.

As with any new process, the answer is having a decent mid-point offering. A ‘computer says no’ approach is not really much use, but a simple, quick online system backed up by access to underwriters who can sensibly discuss a situation will always be the ideal view.

Name: Fahim Antoniades
Company: Mortgage Centre IFA

Like many forms of regression analysis, credit scoring makes use of several numerical or categorical variables based on historical data to predict a future outcome.

The system has been in use for long enough now to be extremely accurate and as we all know, it is heavily relied upon by lenders.

Its accuracy was demonstrated through recent research by Fitch Ratings which showed that fast-track cases had no greater default rate than income verified ones.

Since the credit crisis, it is safe to say that credit scoring has become tougher.

However, my feeling is that we have swung from one extreme prior to the credit crisis to the opposite extreme now and therefore it is unsurprising to see many people are turned down.

For example, we all know instances where people who, in between moving homes, have attracted a minor default. This in my view, is a piece of data that does not allow for circumstantial events.

In other words, the event itself is not typical of the client’s profile and therefore not an indicator that the applicants are financially negligent.

While I believe in credit scoring, what I don’t believe in is the lack of will shown by many lenders to make this type of distinction because it is supposedly easier to move on to the next case.

This is where the human touch is important and I believe the best method would be to marry up the electronic with the human so that a fairer outcome can be achieved for all.

Name: Lee Gladwell
Company: Platform

Kensington’s research has helped draw attention to an important issue in the market.

Although the actual figure may well be less than 10 million, there can be little doubt that many lenders have implemented both a more restrictive lending policy and a tougher credit-scoring policy in response to the downturn whether by automation or by manual underwriting.

It is not only a major issue for first-time buyers. Those that previously borrowed at high LTVs with deals coming to an end are likely to be in for a shock from the hike in rates offered on new products.

When it comes to assessing risk, lenders should not apply a prescription approach. There is certainly room for automated processing. It helps speed things up and can be extremely effective, but it should not be a complete replacement for manual underwriting.

Skilled underwriters with expertise and experience in evaluating risk are vital – particularly when it comes to assessing higher risk business – and the two should be combined to create a responsible and fluid approach.

Although we are unlikely to see a return to the types of lending that became common place in the period prior to early 2007, we believe it is important that the industry develops a broad range of solutions to ensure that large numbers of borrowers have somewhere to go.

A responsible approach by lenders that takes the best of automation and manual underwriting expertise is the right way to go.