Self-employment lead factor for first-time buyer mortgage rejection
This is a big change against pre-lockdown research results in March, said Aldermore Bank, when it was only the ninth most common reason for a rejected application.
As a result, nearly a quarter said they have given up being self-employed to secure a mortgage.
Other top reasons for prospective first-time buyers being turned down for a loan include deposit size at 18 per cent, salary intake with 16 per cent and poor credit history at 15 per cent of applicants.
Aldermore Bank’s index, a survey of 1,000 prospective first-time buyers, reveals many are struggling to secure a mortgage with six in ten saying buying a home feels unachievable at the moment.
Working on credit scores
Nearly a quarter of prospective first-time buyers said 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 were having an overdraft, a gap in employment, student loans and credit card debt.
On a more serious note, 8% had taken out a payday loan, 7% had an account handled by collection agencies, and 4% had County Court Judgments (CCJs) on their credit files.
However, prospective first-time buyers were improving their credit with half ensuring they pay bills on time, over a third or 34% actively paying off debt, and nearly one third registering onto the electoral roll.
Other credit rating improvement initiatives include closing unused credit cards, reducing an overdraft and seeking debt advice, according to the report.
The survey revealed a lack of confidence on how to start the approach to homebuying, with two thirds admitting finding the process confusing.
These factors, alongside applying for a mortgage and waiting to see if it will be accepted, made three in four first-time buyers feel the whole process was stressful.
Jon Cooper, head of mortgage distribution at 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.”