First-time buyers: five ideas to improve your likelihood of getting a mortgage
Nearly 1 / 2 of prospective first-time buyers have experienced mortgage applications rejected, with self-employed workers and contractors experiencing the biggest struggles.
A new report has highlighted the challenges facing people looking to purchase their first home as mortgage options dry up and rates rise.
Here, Which? explains the primary reasons buyers get their mortgage applications rejected and offer advice on using your odds of getting accepted.
Nearly half of mortgage applicants happen to be rejected
A new report by Aldermore Bank found 45% of prospective first-time buyers have experienced a home loan application rejected.
The survey of just one,009 would-be buyers shows 35% were rejected once and 10% happen to be rejected multiple times.
The most typical reason behind rejection in August had been self-employed, accompanied by lacking a big enough deposit, low earnings, and having a poor credit rating.
COVID-19 and mortgage rejections
Aldermore’s data shows that the primary reasons individuals are denial have changed since the start of coronavirus pandemic in the Spring.
In August, 20% of rejected respondents said they missed out because of being self-employed, on the contract or having inconsistent income – the most popular reason given.
Back in March, however, it had been just the ninth most typical reason for being declined, when a bad credit score ratings and low deposits topping the charts.
The most common causes of rejection in March and August are provided within the interactive chart below.
What’s been happening to mortgages?
The COVID-19 outbreak saw mortgage lenders withdraw thousands of deals, and first-time buyers were among those worst affected by the cull. More than nine-in-10 90% and 95% mortgages have disappeared since the oncoming of March.
With banks concerned about the prospect of further economic uncertainty, mortgage rates happen to be rising and buyers have reported increasing difficulties with delays, down valuations, and lenders imposing stricter rules on who are able to apply for their deals.
These tighter rules are likely to have led to the down sides faced by self-employed workers, whom lenders sometimes consider riskier due to their inconsistent incomes.
Five ways to improve your mortgage chances
It’s a hard time to get a mortgage, especially if you’re a first-time buyer with a small deposit, but there are some things you can do to enhance your chances.
Here are our top five tips on making yourself more appealing to lenders and securing financing for your first property.
1. Improve your credit rating score
Your credit report is a vital element in obtaining a mortgage, so it’s vital that you ensure things are current and there aren't any outstanding issues inside your score.
Aldermore says 23% of first-time buyers are involved regarding their credit rating, with overdrafts, charge card debts and payday loans among their biggest concerns.
The good news can there be are some simple steps you are able to decide to try enhance your record. These include making sure you’re around the electoral roll at the current address, ensuring there aren't any errors on your report, and cutting financial ties with ex-partners.
Aldermore says people worried about a bad credit history shouldn’t necessarily write off their chances of getting a mortgage, as numerous lenders will consider borrowers with historic credit issues.
2. Save a larger deposit
As we mentioned earlier, there are hardly any low-deposit mortgages available at the moment, so you may find that you’ll need to save for extended to purchase your first home.
Before the pandemic, it was possible to obtain a mortgage with a deposit of 5%, but right now you might need 15% – a figure that may seem out of reach for a lot of savers.
It might be that low-deposit mortgages make a comeback, but in the meantime, it’s worth seeing should there be any steps you can take to enhance your savings.
For example, you could consider saving right into a lifetime Isa, which will allow you to benefit from a 25% bonus in the government when you buy a home.
3. Get the finances in order
This is particularly important if you’re self-employed. When we spoke to brokers about obtaining a mortgage like a self-employed worker or contractor in July, we were told that ‘there are other hoops to jump through than ever before before’.
Lenders may wish to see at least two years of audited accounts to verify your income before considering an application, and you will require a bigger deposit than ever before.
The most essential thing is to get your paperwork in order ahead of time, so that you can clearly evidence your income and ability to make repayments for your broker and lender.
4. Choose the best time
With so many prospective buyers having been rejected by lenders, it’s vital that you ensure you’re applying for a mortgage in the right time.
Rejections can impact your credit history as well as your morale, so don’t rush into applying.
Make sure you’ve got a large enough deposit saved and seek information around the kinds of deal you may be entitled to.
Lenders may wish to see you’re a secure option, so get your credit file so as and choose a period when you’re inside a settled job. If you’ve recently started a new role, wait until after you’ve passed your probation period before you apply.
5. Take advice from the mortgage broker
Buying a house will be your biggest investment, therefore it makes sense for the greatest possible advice to help you get the right mortgage.
It’s worth speaking to a whole-of-market mortgage broker, who definitely are in a position to take a look at all the available deals and discover a home loan that suits your needs.
A broker can be especially useful if you have specific circumstances that could affect your mortgage chances, for instance, if you’re self-employed, have a small deposit, and have a history of credit issues.
