Aldermore bank’s First Time Buyer Index2, a survey of 2,015 prospective first time buyers, reveals many are struggling to secure a mortgage as conditions created by Covid-19 continue to bite.
Prospective first time buyers are currently experiencing significant levels of mortgage rejection. Only a third (35%) that are looking to buy their first home were able to get a mortgage on the first attempt, considerably down from almost half (48%) that were able to do so in the First Time Buyer Index findings from March 20203, just before the Covid-19 pandemic hit.
Nearly half (45%) of prospective first time buyers say they were rejected for a mortgage once, and a further 20% say they were rejected for a mortgage more than once.
The main reason for a rejected mortgage application was that the prospective first time buyer has poor credit history (21%), followed by an administrative error (21%) and not having a large enough deposit (20%).
| Reason for mortgage application getting rejected | % |
| Poor credit history | 21% |
| An administrative error | 21% |
| I didn't have a large enough deposit | 20% |
| I'd taken out a payday loan | 18% |
| I was self-employed, have irregular income or a contract worker | 17% |
| I haven't always lived in the UK | 17% |
| I had a large amount of debt | 17% |
| I'd made too many credit applications | 15% |
| Me/my partner was not on the electoral roll | 14% |
| Me/my partner were not earning enough | 14% |
Half of prospective first time buyers (49%) experienced disruption to their employment since the pandemic began increasing fears of credit issues and difficulty securing a mortgage.
Over a third (35%) were put on furlough but are back working now, one in ten (9%) are still on furlough currently, and 5% have either lost income or been made redundant since the pandemic began.
Future financial stability remains an ongoing stress as two in three (62%) say they’re worried about their current financial situation.
Over a quarter (26%) of prospective first time buyers say credit history is a big concern, with two in five (36%) 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.
Credit issues prospective first time buyers have experienced are wide ranging with the main barriers affecting applying for a mortgage include having an overdraft (29%), student loans (24%), missed bill payments (21%) and a gap in employment (21%). There is also a noteworthy proportion that have more significant credit issues with one in nine having taken out a payday loan (13%), 7% having a County Court Judgement (CCJs), and 6% having a bankruptcy in their past.
| Credit Issues | % |
| Used my overdraft | 29% |
| Had a student loan | 24% |
| Missed my bill payments | 21% |
| Had a gap in employment | 21% |
| Been responsible for dependents (e.g. children) | 21% |
| Been in credit card debt | 21% |
| I have had gambling transactions on my history | 13% |
| Taken out a payday loan | 13% |
| Any account handled by collection agencies | 9% |
| Had a County Court Judgement (CCJ) | 7% |
| Been declared bankrupt | 6% |
Jon Cooper, head of mortgage distribution, 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.
“I would also recommend getting help from a broker, which can be a great boost in navigating the many pitfalls and confusing processes. They provide a whole of market view and cut through the jargon to provide options specific to a new buyers’ individual circumstances.
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.
Read our top tips on getting mortgage ready here.
**Ends**
1 Research conducted, on behalf of Aldermore bank, by Opinium in March 2020, with a national representative sample of 2,003 prospective first time buyers
2Research conducted, on behalf of Aldermore bank, by Opinium in September 2021, with a nationally representative sample size of 2,015 Prospective First-Time Buyers and 500 actual first time buyers, that purchased a home from March 2020.
3 Research conducted, on behalf of Aldermore bank, by Opinium in March 2020, with a national representative sample of 2,003 prospective first time buyers
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