Smaller lenders have reacted to the regulator’s mortgage market feedback statements this week by calling on peers to shun ‘robo-underwriting’ and act to help older borrowers.
On Monday, the Financial Conduct Authority published the results of its responsible lending review and responses to its call for input, with the latter finding lenders could make more effective use of technology in the provision of information and advice.
However, Ipswich Building Society chief executive Paul Winter argued using computers to review data and judge a borrower’s suitability will create too much standardisation in the way the sector does business.
“While the big retail banks will have a requirement to bring in robo-solutions in order to deal with the scale of their businesses, we should also be concerned for the mortgage misfits who do not fit the standard algorithm of an applicant and for whom the ‘computer says no’ approach to lending will deny them the chance to get on the housing ladder, or remortgage to a better deal.”
The building society has previously campaigned with some of its smaller peers to maintain the manual underwriting standards they see as giving options to borrowers rejected by high street bank automated systems.
Winter described ‘mortgage misfits’ as credit worthy borrowers whose individual situations mean they do not meet the standard criteria demanded by automated lending reviews.
These included those approaching or in retirement, the self-employed and contract workers, mortgage holders with lower incomes and people with different sources of income such as pensions, equity in a business or property, rental income and investments.
Matt Andrews, managing director at new specialist lender Bluestone Mortgages, said the UK workforce is increasingly a combination of contractors, self-employed workers and freelancers, who struggle to access lending due to their complex financial circumstances.
He accused robo solutions of “looking not at the full picture”, meaning responsible borrowers can find themselves locked out of the market.
Innovation in lending needed to cater to this sector of the market, Mr Andrews said, but suggested a balance must be struck between automated technology and ‘intelligent technology’.
“To ensure a consumer’s individual circumstances are taken into account, and lending decisions are made on a case by case basis, technology in the mortgage market needs to retain its human touch.”
The FCA’s review found no evidence the 2014 Mortgage Market Review rules prevented firms lending responsibly to consumer groups such as older borrowers and the self-employed.
However, it was “especially mindful” that older consumers represent an increasing proportion of the UK population and stressed the importance that the mortgage market continues to develop a range of products that can meet their needs.
With this in mind, National Counties and Family Building Society director of business development Keith Barber laid down the gauntlet to other lenders.
He cited earlier research carried out by the building society which suggested high street banks were automatically rejecting borrowers on the basis of the age, before any detailed examination of financial circumstances.
“In an age where we are living longer, it does not seem right that people are being discriminated against in this way; the FCA should be actively making sure that firms don’t apply blanket age caps arbitrarily,” stated Mr Barber.
“Now, and rather belatedly, many lenders have pledged not to discriminate against older borrowers. Well, the proof of the pudding will be in the eating. We note with no little irony the regulator’s comment on some lenders over reliance on computers to make decisions on lending. Will the computer finally say yes?”
peter.walker@ft.com
