This is according to a survey of 1,000 prospective buyers conducted by lender, Aldermore Bank, which also found as many as one in 10 respondents had been turned down for a mortgage more than once.
Its First Time Buyer Index revealed the most common reason for rejection was being self-employed or a contract worker. Indeed, as many as 23% of those quizzed admitted they had given up their self-employed status in order to secure themselves a mortgage.
And it would seem Covid has exacerbated problems for self-employed mortgage seekers as Aldermore’s research showed back in March, being self-employed was the ninth most common reason for being rejected.
Today it’s the top most likely reason for a mortgage being declined.
Credit rating
There were also major concerns about credit ratings with a third of first-time buyers trying to boost their prospects by taking steps to improve their credit score.
Over half were ensuring they paid bills on time as part of their bid to increase their score. Meanwhile, over a third (34%) were actively paying off debt, and nearly one third (29%) registered onto the electoral roll to raise their rating.
Other credit score improvement initiatives included closing unused credit cards (19%), reducing an overdraft (18%) and seeking debt advice (7%).
Don’t give up hope…
Jon Cooper, head of mortgage distribution, Aldermore said: “A decline for a mortgage can be a deflating experience for those looking to fulfil their dreams of home ownership, but do not despair as options for first-time buyers and the self-employed have broadened over the past decade.
“The growth of specialist lenders, who can handle more complicated applications, have allowed for credit issues to not be as much of a significant barrier to buying a home as it was before.”
Indeed, Aldermore explained the current generation of first-time buyers were now far more diverse, coming to the market with a wide range of financial backgrounds. However there was one constant – namely, they all appear to find the process confusing and complicated, and the pandemic has only heightened this.
Cooper added: “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.”
If you are struggling to take out a mortgage because you are self-employed or have a low credit rating, Aldemore has come up with some advice to help you improve your chances.
Aldermore Bank’s top tips to help secure a mortgage
If you are… self-employed
In these uncertain times there may be some self-employed who are looking to buy their first home but may have suffered a loss of income this year.
Lenders will fundamentally need to understand if a customer can afford the mortgage repayments and verify their income.
Lenders are currently requesting around two years of accounts in this period but will accept pre-Covid income based on the latest tax year (April 2019 to April 2020).
Lenders will then look to verify how the customer can afford the mortgage payments if their income has been impacted and whether income will return to expected levels or be different going forward.
Anyone self-employed who has had their income affected by Covid-19, should provide as much information to their broker or lender, who will outline options and clarify any further action needed.
If you are … a first-time buyer
No matter how early in the process you are, we would encourage you to go seek advice from a broker.
Our research found 91% of prospective first-time buyers found their broker useful but only 14% had used one.
They can give guidance on all aspects of the journey and there is no better time than now to get it, as they will give a whole of market view specific to your individual circumstances.
If you have a smaller deposit, there are less products available than before lockdown, which means many new buyers may have to raise a bigger deposit, but for those with smaller deposits there are still options available such as shared ownership and Help to Buy.
If you have… credit issues
Credit issues can be a huge worry for first-time buyers. There are quick things you can do to improve your credit score such as registering on the electoral roll, closing unused credit cards and paying off an overdraft or student loan.
Every little thing will make it easier to show you can afford repayments and that you are responsible in each commitment. If this is a concern, reach out to a mortgage broker who can provide advice on improving your credit score and explain what mortgage options are available for you.
Credit issues are no longer as much a barrier to buying a home as they were in the past. Specialist lenders will consider borrowers with CCJs and other credit issues.
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.
In addition, the pandemic has caused over 1.9 million to apply for payment breaks, so you are not alone in being affected by this. Given the sheer volume, lenders are likely to be as considerate and understanding as they can in the future when reviewing your finances during this period of time.
People may be asked more questions than normal when applying for a mortgage as lenders are required by the industry regulator to ensure they are lending responsibly.
[box style=”4″]
Need some help with your mortgage?
What Mortgage has teamed up with L&C to offer you expert advice on the right mortgage deal.
Whether you’re buying a new home, remortgaging to a new deal or buying an investment property, L&C can help – and you’ll pay no fee for their advice. To find out more, click here.
[/box]
Its really helpful content for the people with credit issues.Thanks for sharing.