Only one third (35%) were able to get a mortgage at their first attempt – which is significantly less than the 48% who were accepted before Covid struck.
The survey by mortgage lender Aldermore Bank found nearly half (45%) of prospective first-time buyers it quizzed were rejected for a mortgage once whilst 20% had been turned down more than once.
It would appear having a poor credit history was the most common reason for mortgage rejection, with 21% of first-time buyers being turned down for this reason.
Credit issues amongst would-be first-time buyers included overdrafts, student loans and missed bill payments. A smaller number had more significant issues causes by payday loans, having a County Court Judgement (CCJ) or bankruptcy.
Administrative errors and not having a large enough deposit were also named as the second and third main reasons for rejection.
But with half of prospective buyers, according to Aldermore, experiencing disruption to their employment since the pandemic began and one in ten still on furlough the survey showed there were clearly other challenges hindering the progress on to the property ladder.
Indeed, as many as two in three said they were worried about their current financial situation.
Disheartened
Jon Cooper, head of mortgage distribution, at Aldermore said: “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.
“They shouldn’t despair though as there are many options open to them. Specialist lenders, like Aldermore, 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.”
Advice to first-time buyers with credit problems
Aldermore has offered some advice to prospective first-time buyers to help them improve their chances of getting accepted for a mortgage if they have credit problems.
Get advice from a broker – No matter how early in the process you are, we would encourage you to go seek advice from a broker. 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.
Build your credit history – It is common among younger people, like first time buyers, to not have long histories of credit. 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, (but space out credit applications over time) and to demonstrate your ability to pay them on time and show you’re financially responsible.
Start working on improving your credit score now – There are quick things you can do to help this; 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/ paying off an overdraft or student loan.
Every little thing will make it easier to show you can afford repayments and that you’re responsible in that commitment. If this is a concern, reach out to a mortgage broker who can provide advice on improving your credit score and what mortgage options are available for you.
Credit cards can have a varying effect on credit history – Many retain the same credit card for years, so they are often the oldest credit facility on your report, which means closing them down can reduce a person’s score.
However, it may be useful to close down for example store credit cards that have been opened recently with high annual fees, this may help a person avoid temptation of overspending and help in reducing annual bills.
When using credit cards, ensure you do not go near your credit limit to convey you’re not overly-reliant on credit and are responsible in using it.
Specialist lenders can help – Credit issues are no longer as much a barrier to buying a home as they used to be. 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.
