Have mortgages become harder to obtain?

John Ellmore - NerdWallet
25th May 2021
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Homeownership is widely accepted as a key milestone in many Britons’ lives.

Of course, the motivations for buying a property differ from person to person. Some seek the stability that homeownership offers and want to gain full autonomy over their living spaces, allowing them to decorate their home exactly how they want to. Others view it as an opportunity to make strong returns on a bricks and mortar investment.

Regardless of people’s reasoning, it is realistic to assume that the majority of prospective buyers will need a mortgage in order to achieve this goal. In most cases, this is unlikely to be an issue. Indeed, a recent survey of over 500 UK mortgage holders, commissioned by NerdWallet, revealed that on average Britons apply for just 1.1 mortgages before their application is accepted.

However, conditions have changed over the past year. The onset of the COVID-19 pandemic and the UK’s subsequent recession have caused a prolonged period of economic volatility. As such, some mortgage lenders have been forced to tighten their lending criteria. And unfortunately, doing so has made the process more difficult for applicants with a less than perfect credit score.

Reasons for rejection

Evidence certainly suggests that the financial histories of mortgage applicants have had an impact on their application success.

Firstly, the allowance of existing debt is being more stringently evaluated in mortgage applications, possibly to allow more disposable income during these uncertain times. As such, people who may have not managed pre-existing debt as efficiently could find it difficult to be accepted by a provider.

For example, NerdWallet’s aforementioned research found that one in ten (10%) prospective home buyers have had an application rejected by a lender due to pre-existing debt. Meanwhile, 8% were turned away because of a poor credit score.

Whilst frustrating for some, it could be argued that there is some logic fuelling these rejections. After all, lenders value reliability and stability, and so if an individual does not have an “excellent” credit score, or has pre-existing debt, they will be less inclined to lend them money.

A more troubling statistic is that one-tenth (10%) of NerdWallet’s survey respondents claim to have had a mortgage application rejected because they had taken advantage of a loan repayment holiday in the past. This statistic contradicts previous Government announcements, which maintained that taking a loan repayment holiday (mortgage or otherwise) would not hinder people’s ability to access credit in the future.

That said, each mortgage provider will have its own distinct approach to lending and risk appetite. And this means, if someone were to take a payment holiday, some lenders may think that it is not in the applicant’s best interest to borrow more. Consequently, Britons could feel that they are wasting valuable time and effort applying for mortgages, without knowing if they have a realistic chance of being accepted.

Such figures may not inspire optimism for potential homebuyers. However, this should not mean that prospective applicants should put their homeownership dreams on hold if they do not have a pristine financial history. Mortgages may still be available to them – they may just need to work a bit harder to find one that best suits their needs.

Where to start

NerdWallet’s recent research found that UK mortgage-holders speak to just two mortgage providers before applying to their first choice.

I do not think this is enough due diligence to determine whether a lender suits the applicant’s specific needs, or indeed gauge whether they are actually willing to lend them the money. After all, nearly one eighth (12%) of mortgage applicants were rejected, despite receiving a mortgage in principle from that same lender.

As such, I urge prospective applicants to dedicate more time researching and speaking to different mortgage lenders to avoid this fate, and comparison websites are a great place to start with this. They search the market for a variety of different mortgage options and present the findings in an easy to read table – prospective homeowners simply need to select an option to suit their needs.

Alternatively, Britons might consider consulting a mortgage broker to guide them through the mortgage process. Whilst they do charge for their services, the tailored advice of a mortgage broker could help prospective applicants select realistic mortgage options, saving them the frustration of being rejected due to certain aspects of their financial background.

The mortgage application process can be complicated and cause a great deal of stress and exasperation amongst applicants. However, conducting thorough research and consulting a mortgage broker where necessary should certainly help to make the process much smoother. What’s more, this will also reignite the excitement that should come with purchasing a house.

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