Getting into a first home has perhaps never been so difficult, ironically at a time in the last year or so when the availability of mortgages suitable for first-timers is growing and is certainly the most it has been since the pandemic started.
Not only are first-timers competing in a buoyant market, where demand is huge, supply is not so great, stamp duty holidays exist, and prices continue to rise, but securing a mortgage is not exactly plain sailing either.
Recent research from Aldermore shows how difficult it can be, with 81% of prospective first-time buyers saying they have been rejected for a mortgage at least once – up from 53% last year. And, 43% said they had been rejected multiple times, compared to 17% last year.
Those decisions would be hard to take, although it would be interesting to see how many of those prospective first-time buyers polled actually went through an adviser, because I suspect that the level of rejection would be far lower for those that did.
The reasons for that are quite obvious in that advisers are much less likely to take their clients down a route that is going to end in rejection, whereas borrowers who apply direct to quote a famous phrase, ‘don’t know what they don’t know’.
For instance, looking at their own finances they might believe they are in the best shape possible – perhaps they have secured the deposit they need and they consider that enough to get them over the line when it comes to a mortgage. As advisers will know only too well, that’s perhaps not even the half of it and if – as seems likely – would-be borrowers are targeting the high-street banks and building societies or thinking that those top of the shop on the best buy tables, should be their first port of call, then there is always the chance they will end up disappointed.
That rejection might be even more likely after the 15/16 months many prospective borrowers have had since the start of the first pandemic lockdown. ‘Poor credit history’ was deemed to be the main reason for a rejected mortgage – cited by 41% of those surveyed – and one in five said their credit rating had got worse since Covid-19 hit these shores.
When that is the case, not to use an adviser and attempt to secure a mortgage themselves, is only likely to heighten the chances of their mortgage application being rejected. No adviser worth their salt is going to take their client down a mainstream/vanilla route, if the client’s credit rating is anything less than that required, or for instance, if they’ve missed payments on phones/utilities, have been on furlough, are currently working in part-time roles or in industries which have been impacted by the pandemic far worse than others, such as retail or hospitality.
Of course, you have to add in the availability – or rather lack of availability – of those mortgages which are most appealing to first-timers, namely high LTV products. As we know, when it comes to 95% LTV mortgages, up until very recently the picture has been less than sparkling. Prior to the government intervention, prospective first-timers who did not have some sort of parental support for deposits or to act as a guarantor, were looking at exceedingly slim pickings.
This wasn’t just the case for 95% LTV but also 90% and again, given the year that we’ve had, lenders were able to cherry-pick in terms of the borrowers they thought were worth the risk. Thus, first-timers might have dropped even further down the pecking order and hence why they could not secure the mortgage they wanted.
Of course, there has been a shift over the past couple of months, with the anticipation that higher LTV numbers will continue to rise. That availability though has to be matched by the borrowers’ ability to secure the mortgage on offer, and again it’s going to come down to their financial robustness and passing muster in terms of lender criteria and affordability assessments.
Just because product numbers increase does not mean lenders are going to be any less inclined to look at certain borrowers’ applications harshly, particularly in that vanilla space where demand is very strong, and lenders will feel they have no need to take a risk on an application.
What we might see however is a combination of the specialist residential lending approach with the higher LTV one – specialist lenders are increasingly willing to look at the first-time buyer market and are moving up the LTV risk curve in order to secure the business that the mainstream operators are not interested in. The specialist first-time buyer borrower, rejected by the high-street, could become a valuable commodity and should see their options increase.
Advisers clearly have a huge role to play here and we need to continue educating the prospective first-time buyer public that, unless they really want to up their chances of getting rejected, advice is a non-negotiable.
Patrick Bamford is business development director at AmTrust Mortgage & Credit