Following the onset of the credit crunch banks took on a far more selective approach to help ensure that the risk rating of a potential borrower was acceptable to them. This involved the bank conducting what is known as a “hard search” to ascertain the suitability of a property buyer. The problem is that the credit rating of the property buyer is adversely affected with every “hard search” carried out. As a comparison, a credit check carried out to assess the risk of a tenant is a “soft search” which does not impact this credit rating of the tenant (source: Credit-Check-Services.co.uk).
Of course none of this matters too much if you get an acceptable mortgage offer from the first bank you approach. But for many people the first bank approached may provide poor terms, or worse still they may even decline your application, so you then approach another bank. Each time a bank is approached with a request to lend another “hard search” is carried out, and with it another detrimental impact to the property buyer’s credit rating. Very soon the applicant’s credit rating starts to impact the bank’s perceived risk, thus the terms offered are even less favourable, and the risk of rejecting an application is greater. The overall result is that it becomes increasingly difficult to get a mortgage with every new application made.
Such practices by banks are now being investigated by the Treasury Select Committee as MPs agree to launch a probe into this practice – and about time! Clearly the banks are being unfair to consumers in restricting their opportunity to find the best mortgage by “damaging” a person’s credit rating every time they submit an application. It is expected that the Treasury Select committee will report back later in 2009, when we find out we will provide an update in our blog.
