Aldermore bank’s First Time Buyer Index1, a survey of 1,000 prospective first time buyers, reveals many are struggling to secure a mortgage as challenges around credit and deposit size bite in the Covid-19 environment.
Prospective first time buyers have experienced a significant increase in mortgage rejection year-on-year. Only one in five (19%) looking to buy their first home were able to get a mortgage on the first attempt, contrasting strongly with almost half (48%) that were able to do so in the First Time Buyer Index findings from March 20202, just before the Covid-19 pandemic hit.
Two fifths (38%) of prospective first time buyers say they were rejected for a mortgage once (36% in March 2020), and a greater amount (43%) say they were rejected for a mortgage more than once, a large spike from just 17% in March 2020.
| Mortgage rejections | March 2021 | March 2020 |
| I got a mortgage on the first attempt | 19% | 48% |
| I was rejected once for a mortgage | 38% | 36% |
| I was rejected more than once for a mortgage | 43% | 17% |
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%).
| Reason for mortgage application getting rejected | March 2021 | March 2020 |
| Poor credit history | 41% | 19% |
| I didn't have a large enough deposit | 39% | 19% |
| Me/my partner was not on the electoral roll | 39% | 13% |
| The lender made an administrative error | 35% | 14% |
| I was self-employed, have irregular income or a contract worker | 33% | 12% |
| I haven't always lived in the UK | 31% | 14% |
| I'd taken out a payday loan | 29% | 12% |
| I'd made too many credit card applications | 27% | 14% |
| I had a large amount of debt | 26% | 20% |
| Me/my partner were not earning enough | 25% | 18% |
Over a quarter (28%) of prospective first time buyers say credit history is a big concern, with two in five (39%) looking to actively improve their credit score to increase their chances of securing a mortgage. One in five (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 nearly a quarter (23%) having an account handled by collection agencies, one in nine (14%) having taken out a payday loan, 12% having a County Court Judgement (CCJs) and 9% having a bankruptcy in their past.
| Credit issue | March 2021 | March 2020 |
| Used my overdraft | 34% | 32% |
| Had a gap in employment | 31% | 21% |
| Had a student loan | 26% | 27% |
| Been responsible for dependents (e.g. children) | 26% | 22% |
| Been in credit card debt | 23% | 26% |
| Any account handled by collection agencies | 23% | 10% |
| Missed bill payments | 21% | 21% |
| I have had gambling transactions on my history | 16% | 12% |
| Taken out a payday loan | 12% | 9% |
| Been declared bankrupt | 9% | 5% |
Prospective first time buyers are now actively improving their credit with half (51%) ensuring they pay bills on time, over a third (37%) recently registering to be on the electoral roll, 28% actively paying off debt, and nearly one quarter (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 home ownership.
“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.”
**Ends**
1 Research conducted, on behalf of Aldermore bank, by Opinium in March 2021, with a nationally representative sample size of 1,008 prospective first-time Buyers.
2 Research conducted, on behalf of Aldermore bank, by Opinium in March 2020, with a national representative sample of 2,003 prospective first time buyers
For further information, journalists can contact our PR Team.
For further information about Aldermore, please review our Notes to Editors page.
Follow us on Twitter: @AldermoreNews