Almost half of prospective first-time buyers have been rejected for a mortgage

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.”