Rules are for the guidance of wise men and the blind obedience of fools, so stated Solon, lawmaker of Athens. I cannot imagine he had mortgage lending practices in mind but his statement resonates with the idiocy that frames the current lending policies.
Lending practices are substantially different to those endured just three small years ago and not for the better. It is not so much a change as a mutation – one from a flawed but sentient being into some robotic simulacrum of a thinking creature.
Never has this been more evident to me than travails suffered this week at the hands of lenders that choose to sacrifice common sense and logic at the shrine of process and inflexibility.
In seeking an appropriate buy-to-let mortgage for my first-time buyer client, I settled on Leeds Building Society. Unlike most lenders, its terms state that first-time buyers will get individual consideration. I phoned for such consideration and was advised that the case appeared to be an excellent one – 48 per cent loan to value for an army lieutenant earning £30,000 and holding an investment portfolio valued at £640,000.
The decision in principle was successful and a full application followed. The following week, I received a voicemail advising that as a first-time buyer, he was ineligible. I telephoned and, at this point, the phrase “talking to a small cat” sprang to mind. The department manager, who was far too busy and important to speak with me, advised through his junior that as the applicant had no credit history, they were unable to proceed. Why would somebody with £640,000 of investments require credit, I asked.
In short, despite being told that the case was excellent and despite every aspect fitting their criteria, this low-risk case was turned away by a failure to exercise common sense.
Similarly, I looked towards Precise Mortgages for finance for a client with a chequered credit history. Again, a discussion with the sales team elicited a “yes” and I began the Dip process. The client wanted £120,000 on £315,000 – 34 per cent LTV – and income fitted. Oh dear, horror of horrors, he was looking to buy a new property from plan and Precise Mortgages will not allow an application for any property that is less than five years old.
So, while an 80 per cent application for a six-year-old property would be successful, a much lower 34 per cent risk is declined for reasons that are not apparent to any free-thinking person. I realise that new builds are often over-valued and for this reason LTVs are frequently limited to 80 per cent or so but this was a 34 per cent application.
Maybe things were too easy five years back. Maybe easy credit made for lax lending practices, loans on a self-cert basis, loans to recently discharged bankrupts, etc. But now we have this unyielding obedience to rules that are designed to constrain lending. A systemic reluctance to challenge the rigidity of rules that have been designed to remove consideration and calculation from the process.
It makes for a quicker, smoother underwriting process but at a cost of rejecting good applications, irritating potential borrowers and alienating advisers.
Alan Lakey is partner at Highclere Financial Services