Nearly half of first-time mortgage applicants rejected during Covid-19

Essex Home Finance
Nearly half of prospective first-time buyers have been rejected for a mortgage, according to new research from Aldermore.
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Nearly half of prospective first-time buyers have been rejected for a mortgage, according to new research from Aldermore.

Over a third (35%) say they have been rejected once for a mortgage and a further one in ten (10%) say they have been rejected more than once.

The number one reason for a rejected mortgage application was that the prospective first time buyer is self-employed or a contract worker (20%). This is a big change on Aldermore’s pre-lockdown research in March when it was only the 9th most common reason for an application being declined. As a result, nearly a quarter (23%) say they have given up being self-employed to secure a mortgage.

Other reasons for prospective first-time buyers being turned down for a loan include deposit size (18%), salary intake (16%) and poor credit history (15%).

Nearly a quarter (23%) of prospective first-time buyers say credit history is a big concern, with a third (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 noteworthy proportion that have more significant credit issues with one in twelve (8%) having taken out a payday loan, 7% having an account handled by collection agencies, and 4% having a CCJ in their past.

Prospective first-time buyers are improving their credit with half (51%) ensuring they pay bills on time, over a third (34%) actively paying off debt, and nearly one third (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 three in five (62%) stating that buying a home feels unachievable. The process of where to start applying for a mortgage is also daunting for many, with two thirds (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 three in four (74%) 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.”

Original Article from Financial Reporter 26/10/20

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