Poor credit history and not having a large enough deposit remain the biggest hurdles for prospective first-time buyers trying to get a foot on the property ladder, as new research from Aldermore reveals that just one five were able to get a mortgage on the first attempt.
Aldermore's new survey of 1,000 prospective first-time buyers, reveals that 38% of prospective first-time buyers say they were rejected for a mortgage once (36% in March 2020), and 43% say they were rejected for a mortgage more than once, a large spike from just 17% in March 2020.
Credit history and deposit size main reasons for rejection
The research shows that many prospective first time buyers are now more likely to be rejected for multiple reasons, rather than just one. The main reason for a rejected mortgage application was that the prospective first-time buyer has poor credit history (41%), up from 19% in March 2020. Other top reasons for prospective first-time buyers being turned down for a loan include deposit size (39%), not being on the electoral roll (39%), administrative error (35%), and being self-employed or a contract worker (33%).
Overcoming challenges to secure a mortgage deal
28% of prospective first-time buyers say credit history is a big concern, with 39% looking to actively improve their credit score to increase their chances of securing a mortgage. 19% now worry that their credit rating has gotten worse since the Covid-19 outbreak.
The main credit-related barriers affecting first-time buyers applying for a mortgage are having an overdraft (34%), a gap in employment (31%), student loans (26%) and credit card debt (23%). There is also a noteworthy proportion that have more significant credit issues with 23% having an account handled by collection agencies, 14% having taken out a payday loan, 12% having a County Court Judgement (CCJs) and 9% having a bankruptcy in their past.
Proactively seeking to improve credit profiles
Prospective first-time buyers are now actively improving their credit with 51% ensuring they pay bills on time, 37% recently registering to be on the electoral roll, 28% actively paying off debt, and 24% paying down their overdrafts. Other credit rating improvement initiatives include closing unused credit cards (21%), seeking debt advice (15%) and paying off a student loan (15%).
Jon Cooper, head of mortgage distribution, Aldermore said: “The data shows that the pandemic has added to already challenging conditions for those trying to get on the housing ladder but first-time buyers should not despair. Being declined for a mortgage, even though it can be a deflating experience, is not game over as options have broadened over the past decade. The growth of specialist lenders, that through human underwriting can dig into the detail of more complicated applications, have opened the door for those with complicated income streams or credit issues in their past to find a pathway to homeownership.
“The home buying process can be confusing and complicated, especially as this generation of first-time buyer is more diverse in financial circumstances than ever before. It may feel daunting at times so we would recommend seeking advice from a mortgage broker that can give a whole of market view and provide options specific to a new buyers’ individual circumstances.”