Just under one in five first-time buyers secured a mortgage on their first attempt last year — tumbling from a rate where almost half of new home buyers had their initial application accepted in the year before the pandemic, according to Aldermore.
Just 19% of FTBs were accepted for a mortgage on the first attempt in 2020, says the challenger bank’s First Time Buyer Index.
This compares with 48% of newcomers who were able to get onto the property ladder at the first time of asking in the bank’s report the year before the health crisis hit.
The study puts this “significant increase in mortgage rejection year-on-year” down to several factors, many of which have been exacerbated by the pandemic.
It found that many FTBs “are struggling to secure a mortgage as challenges around credit and deposit size bite in the Covid-19 environment”.
It said the main reason for a rejected mortgage application is poor credit history, which affected 41%, compared to 19% who cited this reason in the year leading up to the pandemic.
The second most common reason for mortgage rejection is not being able to gather a large enough deposit, cited by 39%.
Not being on the electoral roll, 39%, an administrative error, 35%, and being self-employed or a contract worker, 33%, were the other key reasons why first time buyers say their mortgage applications were initially rejected.
The bank’s report says: “The research shows that many prospective first time buyers are now more likely to be rejected for multiple reasons, rather than just one.”
The survey also found that 43% of applicants were rejected for a mortgage more than once, jumping from just 17% in the 12 months leading up to the health crisis.
It adds that 28% of prospective FTBs are worried about their credit history, and 39% are currently actively looking to improve their score.
Aldermore head of mortgage distribution Jon Cooper says: “The data shows that the pandemic has added to already challenging conditions for those trying to get on the housing ladder but FTBs should not despair. Being declined for a mortgage, even though it can be a deflating experience, is not game over as options have broadened over the past decade.”
He added that the “growth of specialist lenders” over this time has “opened the door for those with complicated income streams or credit issues in their past to find a pathway to home ownership”.
Researchers on behalf of Aldermore interviewed a nationally representative sample size of 1,008 prospective FTBs in March.
