Many prospective first time buyer are struggling to secure a mortgage as challenges around credit and being self-employed him home in a Covid-19 environment, according to Aldermore bank’s First Time Buyer Index.
The survey of 1,000 prospective first time buyer found that the leading reason for a rejected mortgage application was that the prospective first time buyer is self-employed or a contract worker (20%). This is a significant change on Aldermore’s pre-lockdown First Time Buyer Index results in March when it was only the ninth most common reason for an application being declined. As a result, 23% say they have given up being self-employed to secure a mortgage.
Other leading reasons for prospective first time buyers being turned down for a loan include deposit size (18%), salary intake (16%) and poor credit history (15%).
23% of prospective first time buyers say credit history is a big concern, with 34% looking to actively improve their credit score to increase their chances of securing a mortgage. The main barriers affecting first time buyers applying for a mortgage are having an overdraft (28%), a gap in employment (25%), student loans (25%) and credit card debt (21%).
There is also a proportion that have more significant credit issues with 8% having taken out a payday loan, 7% having an account handled by collection agencies, and 4% having a County Court Judgement (CCJs) in their past.
Prospective first time buyers are improving their credit with 51% ensuring they pay bills on time, 34% actively paying off debt, and 29% recently registering onto the electoral roll. Other credit rating improvement initiatives include closing unused credit cards (19%), reducing an overdraft (18%) and seeking debt advice (7%).
The findings also show that first time buyers feel disheartened about the home buying process, especially during these uncertain times, with 62% stating that buying a home feels unachievable. The process of where to start applying for a mortgage is also daunting for many, with 64% finding home buying a confusing process. These factors, alongside applying for a mortgage and waiting to see if it will be accepted, has made 74% of first time buyers feel the whole process is stressful.
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.
“The current generation of first time buyers are now far more diverse, coming to the market with a wide range of financial backgrounds, but one constant is they all appear to find the process confusing and complicated, and the pandemic has only heightened this. 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.”