Nearly half of first-time buyers have been turned down for a mortgage

Nearly half of first-time buyers have been turned down for a mortgage, survey finds

  • Nearly two-thirds said buying a home feels less achievable in current conditions
  • Over third (35 per cent) of those surveyed have been rejected once for mortgage
  • Further one in 10 – 10 per cent – were turned down more than once for mortgage
  • The most common reason given for rejection was applicant being self-employed

Nearly half of would-be first-time buyers have been turned down for a mortgage, a survey has found.

And nearly two-thirds (62 per cent) said buying a home feels less achievable in current economic conditions.

Over a third (35 per cent) have been rejected once for a mortgage.

A further one in 10 (10 per cent) have been turned down more than once, according to the survey of more than 1,000 prospective first-time buyers in August.

The most common reason given for rejection was that the applicant was self-employed or a contract worker, according to the research commissioned by Aldermore Bank.

And nearly two-thirds (62 per cent) said buying a home feels less achievable in current economic conditions (file photo)


  • If an applicant’s income has been impacted by Covid-19, lenders will want to understand whether it will return to expected levels or have changed longer term.
  • If someone who is self-employed has had their income affected by Covid-19, they should provide detailed information to their broker or lender so they can outline the options.

A first-time buyer:

  • Using a broker may help. Aldermore found nine in 10 (91 per cent) prospective first-time buyers who had used a broker found them useful – but only 14 per cent had used one.
  • Also, there are fewer low-deposit products available than before lockdown, which means those looking to get on the property ladder may have to raise a bigger deposit. For those with smaller deposits there are still options available, such as shared ownership or Help to Buy. The schemes available may vary depending on where in the UK the first-time buyer lives.

Have credit issues:

  • There are quick steps which can help, such as registering on the electoral roll, closing unused credit cards and, if you can afford it, paying off an overdraft.
  • Specialist lenders will consider borrowers with county court judgments (CCJs) and other credit issues. You may need to pay a higher rate initially but making all your mortgage payments on time will improve your credit rating, making it easier to get a better rate when you apply for a future loan.

This marked a change compared with the bank’s first-time buyer index carried out in March, when this was the ninth most common reason given for an application being declined. The most common reason for rejection at that time was applicants’ existing debts.

Other top reasons for prospective first-time buyers being turned down for a loan in the August survey included not having a big enough deposit or income and having a poor credit history.

A third (34 per cent) of people trying to get on the property ladder said they were looking to improve their credit score by paying bills on time, paying off debts or registering on the electoral roll.

Some had also given up their self-employed status because they felt this might give them a better chance of securing a mortgage.

Many low-deposit mortgage deals have disappeared from the market since March as lenders grew concerned about the potential for house prices to fall.

In this scenario, home owners who had put down the smallest deposits would potentially be at the greatest risk of falling into negative equity – where the amount they have borrowed outweighed the value of their property.

The UK Government has plans for a new 5 per cent deposit mortgage scheme, with further details yet to emerge of how these loans will be made available.

Jon Cooper, head of mortgage distribution at Aldermore Bank, 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.’

He said there has been a growth in specialist lenders who can handle more complicated applications.

Mr Cooper added: ‘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.’

TSB withdraws brokerage deals from anyone with less than a 40% deposit as economic devastation from coronavirus threatens a new credit crunch

TSB has withdrawn two-year mortgage brokerage deals with deposits of less than 40 per cent, dealing a blow to prospective homeowners.

Customers can still apply for these products, but only directly with the bank.

Barclays has also ended a range of mortgages for borrowers with less than a 25 per cent deposit and none of the main high street banks are currently offering mortgages for customers with less than 15 per cent equity.

A Bank of England survey has found that banks and building societies expect to clamp down on lending for all borrowers.

It has lead to higher mortgage rates, with buyers having to compete for deals still on the market. 

TSB has withdrawn two-year mortgage brokerage deals with deposits of less than 40 per cent, dealing a blow to prospective homeowners 

Five-year fixed mortgage costs have risen from 2.26 per cent to 2.62 since June on average.

The average two-year deal has risen from 2.02 per cent to 2.38 per cent during the same period. 

Managing director of the mortgage broker Forensic Property Finance Jonathan Harris told The Times: ‘First-time buyers and those requiring high loan-to-value mortgages have found it tricky to get finance for a while. 

‘Now those with big deposits or similar levels of equity are also being affected.’

Lenders signed off 84,700 mortgages in August, the most since October 2007, but banks are increasingly concerned about a fall in house prices.

They are also bracing for the Bank of England base rate to be cut from its present record low of 0.1 per cent

Average house prices also hit a record high of more than £224,000, according to Nationwide, as pent-up demand and the Chancellor’s stamp duty holiday fuelled a frenzy of activity. 

But economists have consistently warned the revival could come to an abrupt end when unemployment begins to bite.

September saw the biggest monthly increase in mortgage rates since 2009 and the Bank of England expects this upward trend to continue over the final quarter.

And the number of mortgages  has fallen from 5,222 in March to 2,300 now, according to the financial data provider Moneyfacts.

The Bank of England survey shows lenders expect them to fall again over the next few months and defaults are also expected to rise at their fastest rate since the financial crisis.

Loans for those with less than a 25 per cent deposit have also dropped from 850 in March to 540.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: ‘We can’t necessarily say this is the beginning of the end, because there are things the Government could do to prop up the market, but it’s certainly not looking good. 

‘Estate agents say it’s already tough to get a mortgage, and difficult to keep a lender onside during the ups and downs of a home move.

‘With the market tightening, and lenders increasingly sensitive to house price moves, it could make life even harder as we get towards the end of the year.’ 

TSB said its decision to end mortgage brokerage deals would help it to manage demand and is not permanent.

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