Borrowers refused best rates

Borrowers who would have been desirable customers just a few months ago are being refused the best deals for mortgages and personal loans as lenders take an increasingly firm line on the most minor of credit discrepancies.

Advisers said that in spite of the recent falls in interest rates, fewer borrowers were qualifying for the best rates as lenders have become increasingly fussy about who they will accept.

Mortgage brokers have cited examples of borrowers being refused a mortgage because they had paid a mobile phone bill a few days late, or because they had opened a number of different savings accounts, which had triggered multiple credit searches from banks.

They said that while some lenders were actively touting for new business and claiming to pass on rate cuts to customers, behind the scenes they were being extremely selective about who they would offer loans to.

“Borrowers need to be aware that each lender will be in a different position with respect to their ability and willingness to lend,” pointed out Ian Gray at Largemortgageloans.com. “This can change drastically in relatively short periods of time.”

Banks are taking a particularly tough attitude with customers who have smaller deposits or are looking to borrow large sums.

“Some banks advertise that they are absolutely in the market to lend, they have a strong capital position and are offering attractive headline rates,” said Gray. “Then, when the client pays an application fee and spends time and money to apply, they purposely make it very difficult to borrow over £500,000.”

Ray Boulger at John Charcol, another broker, said some banks were rejecting mortgage applications even when there was a perfectly reasonable explanation for any blemish that appeared on the credit history.

“Lenders are being much less flexible now if a client is good quality but can’t quite tick all the boxes,” he said.

Banks have also been taking a tougher stance on borrowers looking to take out unsecured personal loans.

The average headline rate for unsecured loans is just below 8.5 per cent but advisers said some banks were charging as much as 25 per cent for borrowers who did not meet their increasingly strict lending criteria.

Lenders must offer their advertised loan rate to at least two out of three customers, but there are no limits as to what the remaining third can be offered.

As banks become more discriminating about who they will lend to, fewer loan applicants are being quoted the best rates.

“We are getting a lot of complaints from customers who have never missed a payment, but who are either only offered high rates or aren’t getting accepted for loans at all,” said Tim Moss at Moneysupermarket.com.

He believed that by next year, it may be impossible to find a loan charging less than 10 per cent.

Nationwide this week followed HSBC, Barclays and Egg by removing its headline loan rate altogether and opting to price loans individually, based on the risk posed by the borrower.

Advisers said this meant borrowers in need of a loan would have to apply – and submit to a credit search – without any idea of what rate they may be offered.

A number of banks have also been relying more on automated systems to make initial credit reference checks and, if any queries have emerged, they have refused the application outright rather than trying to iron out the problem with the applicant or broker.

Some lenders have also raised the bar on their credit-scoring systems so borrowers who would have been accepted earlier this year are now being denied credit.

Any potential borrower seeking to apply for new credit should make sure they have made all their payments on time for loans, mortgages, cards and bills, and should avoid falling into an overdraft or having any payment returned.

“Borrowers need to approach banks with their eyes wide open and make sure that they put forward as strong an application as possible,” advised Gray.