One thing that has always frustrated me about mortgage brokers in the UK is that as an industry, we are still too quick to be ‘yes’ men and women! Our industry is full of great professionals. Still, the reality is it is a cottage industry, although a highly regulated one at that. It’s full of great individuals, but they don’t always have a clear sales structure for the best outcomes of clients. Don’t get me wrong. They are highly qualified and intelligent professionals. But often their sales process is designed for their benefit, not the clients! One caveat, the banks are equally guilty of what I’m about to disclose! Read on to find out about my pet hates and why it matters to you!
Okay, so I’m sure this will annoy many in the profession (both independent mortgage brokers in the UK and advisors in banks). But the truth sometimes hurts!
My big gripe with mortgage brokers in the UK?
It’s quite simple; hooking potential clients in by doing unnecessarily agreements in principle (AIP’s’s or sometimes called the decision in principle – DIP’s)!
You might be thinking, what am I on about, surely AIP’s are an essential part of getting a mortgage?
You are right, they are, but only to a certain extent!
My issue is that it can be used as a sales hook unnecessarily!
Let me explain:
To begin with, it’s crucial that you understand what an AIP is. Now I’m sure you know what it broadly is (its a credit score with a lender to see if they will lend you).
But it’s important you also understand; it’s part of the broader mortgage application form.
The mortgage application form is in effect a two-stage process:
The AIP is part of the overall mortgage application:
Part 1 of the mortgage is the AIP
The first part is the AIP and is usually the generic aspects of a mortgage application. I am speaking in slightly generic terms as every lender’s mortgage application form is different. But in general, they include the names, address history, income, outgoings, and the general plan of what someone is looking to do.
Part 2 of the mortgage follows on from the AIP:
The second part of an application (which is when it then gets submitted to the lender) tends to be about the property, the solicitor whom you intend to use, the direct debit details and the declarations.
Now, whenever an application is submitted, it is vital to have all the documents (payslips, bank statements, and much more) to support it.
Not only because the lender will need this, but because the mortgage advisor needs this to know what income (and lots more info) to put on the application.
So think about it, the broker needs to see paperwork so they can input the correct details.
And this is my problem!
Too many mortgage brokers in the UK will do an AIP without seeing any paperwork!
Why might you ask?
The AIP has limited value!
That’s easy, the whole myth about the validity of an AIP is hugely overhyped! Everyone (okay not everyone but lots of people) think that:
- An AIP virtually guarantees a mortgage.
- It is essential to get an AIP.
Both of these are untrue!
The problem is that it has become almost the default validation of someones ability to get a mortgage. As such estate agents often ask for it when making an offer, and people think that when they have it, it means they can get a mortgage.
So why is it overhyped?
You don’t need evidence to get an AIP – you can enter anything you want!
Just think about that for one moment!
You could get an AIP for ‘any’ amount and present yourself to an estate agent as a credible buyer!
That might be taking it to the extreme.
But if someone gets an AIP without the broker looking at any documents, then the same thing is happening.
They are guessing the income figures they are inputting!
They have to be because they haven’t seen them!
Now I’m sure you wouldn’t do this, but some clients lie!
Yes, I know…your shocked, right?
I’m kidding, they sometimes unintentionally (lie) as they are guessing or trying their best to remember their income which might be made up of different elements.
You would be surprised how complex income can sometimes be, mainly when there are multiple elements such as overtime, bonus or whatever!
But the simple point is, if the income is not validated by the professional, it’s highly likely that it will be wrong.
Which means the AIP is also going to be incorrect.
We know this because we see it every single day!
Of course, the estate agent won’t know this!
The estate agent will be happy and think they have the right buyer!
They will put an offer forward to their client, who then gets excited because they are under offer.
They then offer on a property they want to buy. And so on until the whole sales chain is complete!
Only then for it to all fall down! When the broker submits the full application with all the documents, suddenly realising the income the clients told them was incorrect…and it’s different!
The whole stack of cards starts falling!
Mortgage brokers in the UK and the AIP reality!
It’s a fact the AIP can be a hook – and brokers are lazy, afraid or don’t want to ask for documents upfront as its a quick hook, which gets more commitment from the potential client.
Some would preferably do this, as it avoids having to do more in-depth due diligence at the time when the person might not be committed to using them.
To a certain extent, it is understandable.
Why would a broker want to do lots of work for someone who is not going to use them?
The AIP hook is a quick and tempting solution to get people committed.
But we believe there is a better way, by just being honest, upfront and telling people how it is.
There are a few points whcih need exploring further, and let’s tackle the worst.
Mortgage brokers in the UK use it as a sales hook:
Independent mortgage brokers and high street banks have done this for years. So lets not for one minute think it’s the mortgage brokers in the UK. The banks are sometimes a lot worse!
So what do they do?
They encourage potential clients to do a ‘quick’ AIP and presented in a way which suggests that if they pass, they will get a mortgage.
Remember, it is only a credit score, not a mortgage!
You are not going to get a mortgage until a full application, and a survey on the property takes place. There is no quick shortcut, sorry but that’s just the reality!
The key is to get the whole process to move quickly.
But it still needs the whole process to happen.
Oh and don’t get me started with some of the so-called online mortgage brokers!
A mortgage application is easy! Hey, Habito…easy, huh?
You haven’t been in this game for long enough!
I’m sure you do know really, I’m just kidding.
I’m thankful for the online mortgage brokers to come into our sector. It brings everyone’s game up to face the ultimate challenge, which is to try and tackle the complexity of the mortgage process for the benefit of the consumer.
However, the reality is that it is challenging to make it easy. In part because the industry is so fragmented with lots of different lenders, banks and building societies.
They all have their way of doing things!
Then you’ve got all of the mortgage brokers in the UK all doing things slightly differently, but ultimately fitting in with the different lenders.
It’s a challenge!
Your Credit score ‘could’ be affected:
To be clear, getting an AIP is fine.
It’s part of the sales and mortgage application process.
The potential risk is when multiple AIP’s take place over a short period.
A lender will look at unusual behaviour as well as the facts.
If you can imagine you talk to one mortgage broker and do an AIP. Then you speak to someone else (because you think you need to ‘shop around’) and they do another one. And so on, it doesn’t always look good!
And as a mortgage broker, you don’t know what the other adviser has done, inputted or whom they have applied too!
Imagine if a lender gets two AIP’s for the same person from different brokers, using different figures! Its could start to show warning signs to lenders!
The AIP is like a shopping list for mortgage lenders!
Don’t forget, the AIP for the lender is not just you having a good credit score.
It’s about them deciding whether they ‘like’ you!
If you can imagine a lenders AIP, is a bit like a shopping list of whom they will lend to, and you’ve got to make sure you fit within what they want!
The reality is that no one knows precisely how many is too many!
Doing a few is unlikely to make any difference.
But ultimately they should only be done, when they are required. Not in a scattergun approach trying every lender and every mortgage broker. That is when you are likely to harm your credit score and your chances of getting a mortgage.
The credit score is not everything when it comes to getting a mortgage!
Although you have to protect your credit score by managing your finances (and not doing lots of unnecessary AIP’s). The ‘score’ you get is not always the main focus for mortgage lenders.
To be clear, the ‘score’ is an indicator and gives you a feel.
But the critical aspect is the detail within your credit score!
If you have ever seen your credit report and if you haven’t it’s worth doing to double-check everything is okay before you need a mortgage. You’ll notice there is a detailed report of every credit agreement you have. Within each section it will provide the detail over time of how well you have conducted the account.
The detail is the crucial part to prepare for any mortgage application, not so much the ‘score’ (number) they give you.
Why you often just need a good independent mortgage broker not an AIP!
Okay, you don’t need an AIP!
Yes, that’s right, you DON’T NEED AN AIP!
Is that clear enough?
Let me dive into more detail if you want to know why!
A good independent mortgage broker should be able to get a very high level of probability of success, without doing an AIP. By doing two simple things, it can avoid the need for an AIP and prevent unnecessary ‘foot prints’ on your credit file!
- It’s not rocket science, but; speaking to the person and asking the right questions is critical. Don’t forget a good mortgage broker in the UK will have dealt with all sorts of scenarios and heard it all before. The key here is for the person to be honest with their circumstances and trust the adviser to help them. But they can only help if the person is disclosing everything.
- Get the facts! It sounds obvious, but this is CRITICAL! You need to provide the adviser with all the documents they need, such as payslips.
If a good mortgage broker in the UK has done these two simple steps correctly, they will then be able to research and assess your chances. An AIP should not be the default, as the mortgage broker in the UK will be (or should be) evaluate lending criteria against your circumstances and your plans.
With this research, the mortgage broker (and you) should be very confident of a successful mortgage application.
The reason is quite simple; the adviser has assessed all the evidence and researched thoroughly.
Okay, there are times when an AIP might be a good idea before you make an offer on the property too!
But this tends to be if something has flagged for the adviser that causes them to be unsure.
So there are times that an AIP is a good idea, but the majority of the time, they aren’t needed, if proper research and due diligence have taken place.
The key take-away for a mortgage application:
There are situations and cases which are easy and straight forward. If you are one of those 1 in 10 people, then this issue I am highlighting shouldn’t make any difference to you.
But for the majority 9 out of 10 of you, don’t be suckered in and don’t fall for the AIP hook.
It’s an essential part of the overall mortgage application process. Still, it’s not a mortgage, doesn’t guarantee you a mortgage, and doesn’t mean you’ll get a mortgage.
And of course, be VERY wary if someone offers to do an AIP for you without ever seeing your income.