Mortgage applications: an end to the waiting game

Delays in mortgage applications are costing 79,000 Britons a year their dream property. This is the conclusion of research carried out for the mortgage lender GMAC-RFC. And a further 250,000 homebuyers suffer extra expense because of slow decisions by mortgage companies.

The research found that just over half of all mortgage applications took three weeks or more. Four per cent of home buyers surveyed said that they were gazumped as the result of delays, 4 per cent said their seller pulled out of the deal and 11 per cent said that delays cost them money, because they had to organise a bridging loan or find an alternative property.

Now, GMAC-RFC has launched a system that uses electronic processing to speed up mortgage applications. The record for making a mortgage offer using the new system so far stands at 20 minutes, according to the marketing director Jeff Knight, with one home owner completing a remortgage in 48 hours.

Are mortgage offer delays a significant problem?

The numbers of people affected by application delays is relatively small, industry experts say. However, the impact on the individuals concerned can be severe.

Banks, building societies and brokers have been making "offers in principle" for several years. But the offer is based only on the individual's earnings and credit status. It does not take the property itself into account.

This is where transactions often break down. If a property has a serious defect, such as a leaking roof or a failed damp-proof course, the mortgage company might be willing to lend only part of the purchase price, holding back the rest - known as "retention" - until repairs are made. In some cases, the problem can be worse still, with the lender declining to offer a mortgage. This would normally happen only if there are severe problems or it is valued at significantly less than the agreed price. "A call to a lender will establish whether what the agent suggests is a minor difficulty, is really a show stopper," says Steve Blore of the Nationwide Building Society. "Have full details to hand of anything about the property that is unusual."

What else causes delays?

Local authority searches, title queries and the legal process in general can all slow down buying, as can delays in a valuation.

One step that GMAC has taken is to automate the valuation process using a database. This removes the need to appoint a valuer and wait for their report, and circumvents the problem of the home owner being unable to give the valuer access to the property. It does not, though, remove the need for the buyer to organise their own survey, and that can still cause delays.

A significant source of delays remains, however, in the legal process. "In order for GMAC to be really successful, the legal process needs a sharp injection of technology," says Drew Wotherspoon, spokesman at brokers John Charcol.

Is there a downside?

One catch is that so far, GMAC-RFC is the only lender with "instant" mortgage offers, although several other lenders have electronic application systems that are also swifter than the conventional, paper-based approach.

Jeff Knight concedes that other mortgage lenders will introduce similar systems over the next few months. Such a move would benefit home buyers, as it would create more of a level playing field between lenders. It could also speed up chains: a buyer could still lose a property even if they had an instant offer, if someone else in the chain suffered delays to their mortgage.

One potential disadvantage of a move to more automated applications could be the way it affects applicants with more complicated circumstances, or who are on the margins of what a lender will accept.

According to Drew Wotherspoon, most electronic application systems either reject a loan, accept it or refer it to (human) underwriters. In the latter case, a broker can discuss the application with the lender, but a fully-automated system might not offer that option, and might work against groups, such as the self-employed, who do not have standard proofs of income.