First-time buyers are being warned to brace themselves for rejection following reports that 65 per cent of housing hopefuls have been unsuccessful in securing a mortgage.
Data seen exclusively by The Independent shows only a third of first-time buyers were able to get a mortgage on their first attempt, down significantly from almost half pre-Covid 19.
Almost half have been rejected for a mortgage once and a fifth say they have had multiple rejections, according to Aldermore bank’s First Time Buyer Index. The most common reason is poor credit history, but a fifth have been turned down due to an administrative error in the last year. Another 20 per cent didn’t have a big enough deposit.
Past financial decisions are also coming back to haunt applicants in other ways. Almost one in five were turned down because they had taken out a payday loan, with a similar number rejected because of large debts.
Even irregular incomes or self-employment caused problems for one in five – a situation that is far from uncommon among this demographic.
Usually made up of Millennials and Generation Zers, half of all prospective first-time buyers have experienced disruption to their employment since the pandemic began, increasing fears of credit and mortgage issues.
Over a third were put on furlough but are back working now, while one in 10 are still on furlough currently. Five per cent have either lost income or been made redundant since the pandemic began.
“It’s easy to see from the research why many first-time buyers can feel disheartened by the challenges when looking for their first home,” says Jon Cooper, head of mortgage distribution for Aldermore.
Over a quarter of prospective first-time buyers say their credit history is a particular concern, with the main barriers to a successful mortgage application including overdrafts, student loans and missing bill payments.
“They shouldn’t despair though as there are many options open to them,” Copper adds. “Specialist lenders are opening up the market to those with complicated income streams or past credit issues ensuring that no borrower, whatever their background, feels excluded from the opportunity of getting on the housing ladder.
“I would also recommend getting help from a broker, which can be a great boost in navigating the many pitfalls and confusing processes. They provide a whole of market view and cut through the jargon to provide options specific to a new buyers’ individual circumstances.”
Meanwhile, homeowner hopefuls are urged to build their credit history, not least because younger adults rarely have extensive ones.
This can affect mortgage applications as it can be difficult for companies to assess you, and your credit score may be lower as a result.
You can build a credit score slowly but surely by taking out small forms of credit, like a mobile phone contract, remembering to space out credit applications, and to demonstrate your ability to pay them on time, showing you’re financially responsible.
Be warned though, as credit cards in particular can have a varying effect on credit history.
Many people keep the same credit card for years, so they are often the oldest credit facility on your report, which means closing them down can reduce your score – even if cutting back your available credit seems like the right thing to help show you’re a worthy applicant.
If you continue to use a credit card though, make sure you don’t go anywhere near your credit limit to prove you’re not over reliant on it.
At the same time, it might be useful to close down store credit cards, for example, that have been opened recently with high annual fees.
There are plenty of quick things applicants can do to help improve their credit score too; registering on the electoral roll, setting up direct debits to ensure regular bills such as rent, streaming subscriptions and council tax are paid on time, alongside reducing and/or paying off an overdraft or student loan.
Each of these actions will make it easier to show you can afford repayments, that you’re responsible and take your financial commitment seriously. If you’re worried that your credit score or history don’t reflect that, a mortgage broker can provide advice on improving your credit score and what mortgage options are available for you.
When you are ready to apply, it may be worth considering specialist lenders, though their rates are often more expensive than you’d get from a mainstream lender offering a prime borrower a new mortgage.
Specialist lenders will consider borrowers with CCJs and other credit issues from their past. You may need to pay a higher rate initially but making all your mortgage payments on time will improve your credit rating making it easier to get a better rate when you apply for a future loan.