Exercising caution

If intermediaries were to grab their dictionaries from the bookshelf and look up the word ‘confusion’, they might be surprised to find that footprints are not one of the sub-sections listed.

Knowing what credit footprint a lender might leave and at what stage of the mortgage application process may seem at times a bit of a lottery, but taking a chance with a client’s credit rating is something a broker does not want to do.

The Council of Mortgage Lenders (CML) moved in early January to try and help alleviate some of the confusion with the publication of guidelines on the issue. Sue Anderson, head of external affairs at the CML, explains:

“It’s not a question of guidelines but a representation of what the Financial Services Authority (FSA) expects. Also, it dictates what the credit agencies say so the guidelines are designed to set out for brokers and consumers where they stand.”

Discrepancies

However, despite what the CML says in this document, there still is a number of discrepancies between lenders; something which doesn’t help the position of the broker.

Rob Griffiths, associate director of the Association of Mortgage Intermediaries, comments: “The whole point of the CML issuing guidance is that its members act on it. This will give a level of consistency. The problem is lenders aren’t consistent. It would be helpful if they acted as one, as the job of the broker is made even more difficult in outlining what impact placing a client will have with different lenders.”

However, as Paul Fincham, senior media relations officer at Halifax, says: “It’s dependent on the lender’s attitude to risk. There is no right or wrong stance but what’s most important is that the process is transparent.”

Crucifying credit history

One thing which seems to be apparent is that most lenders will allow a certain number of recent imprints on the record to show the client is shopping around; something the FSA has been keen to back. However, as Ray Boulger, senior technical director at John Charcol, points out:

“If the broker does a good job, he could end up crucifying the credit history. This does inhibit shopping around unless the lenders ignore the footprints or change their procedures. But it’s not good if 50 per cent say they’ll ignore them as you’ve still got to consider the other 50 per cent.”

One relatively unknown factor at present though is the impact on unsecured lending. As Anderson points out: “Secured lenders may be aware but unsecured lenders may not so it is desirable to minimalise the impact on the credit record.”

Boulger adds: “It could upset future unsecured lending. None of this is covered by the FSA so I suspect the lenders aren’t breaking any rules if customers can still shop around. I’m not sure what the rules say about inhibiting, but in terms of turning round to the lender, they won’t know why they’ve been rejected. This lack of knowledge provides no redress scheme either.”

While the CML claims it hasn’t received any evidence of such incidents, the confusion surrounding footprints highlights the potential detriment the client faces.

So can the FSA do anything about it? Robin Gordon-Walker, spokesperson for the FSA, comments: “We do talk to lenders to monitor how they are applying those rules. However, the use of credit searches is not covered by MCOB. We are keen to work with the lenders and the credit agencies to agree a satisfactory system but it is not up to us to impose one as it is out of MCOB’s remit.”

Going back to the dictionary, another ‘c’ word which the industry may need to also look up is caution as while the confusion reigns, it will be the client who feels the pain.