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31 Oct 2020

First-time buyers: five tips to boost your chances of getting a mortgage

New report shows 45% of prospective buyers have seen applications rejected

Nearly half of prospective first-time buyers have had mortgage applications rejected, with self-employed workers and contractors experiencing the biggest struggles.

A new report has highlighted the challenges facing people looking to buy their first home as mortgage options dry up and rates rise.

Here, Which? explains the main reasons buyers have their mortgage applications turned down and offer advice on how to boost your chances of getting accepted.

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Nearly half of mortgage applicants have been rejected

A new report by Aldermore Bank found 45% of prospective first-time buyers have had a mortgage application turned down.

The survey of 1,009 would-be buyers shows 35% were rejected once and 10% have been rejected multiple times.

The most common reason for rejection in August was being self-employed, followed by not having a big enough deposit, low earnings, and having a poor credit history.

COVID-19 and mortgage rejections

Aldermore's data shows that the main reasons people are being rejected have changed since the start of the coronavirus pandemic in the Spring.

In August, 20% of rejected respondents said they missed out due to being self-employed, on a contract or having inconsistent income - the most popular reason given.

Back in March, however, it was only the ninth most common reason for being declined, when poor credit ratings and low deposits topping the charts.

The most common reasons for rejection in March and August are shown in 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 start of March.

With banks worried about the prospect of further economic uncertainty, mortgage rates have been rising and buyers have reported increasing issues with delays, down valuations, and lenders imposing stricter rules on who can apply for their deals.

These tighter rules are likely to have contributed to the difficulties 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 difficult time to get a mortgage, especially if you're a first-time buyer with a small deposit, but there are some steps you can take to improve your chances.

Here are our top five tips on making yourself more attractive to lenders and securing a loan for your first property.

1. Improve your credit score

Your credit report is an important factor in getting a mortgage, so it's important to ensure everything is up to date and there are no outstanding issues affecting your score.

Aldermore says 23% of first-time buyers are worried about their credit history, with overdrafts, credit card debts and payday loans among their biggest concerns.

The good news is there are some simple steps you can take to improve your record. These include making sure you're on the electoral roll at your current address, ensuring there are no 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 many lenders will consider borrowers with historic credit issues.

2. Save a bigger deposit

As we mentioned earlier, there are hardly any low-deposit mortgages available at the moment, so you might find that you'll need to save for longer to buy your first home.

Before the pandemic, it was possible to get a mortgage with a deposit of 5%, but right now you might need 15% - a figure that might seem out of reach for many savers.

It may be that low-deposit mortgages make a comeback, but in the meantime, it's worth seeing if there are any steps you can take to boost your savings.

For example, you could consider saving into a lifetime Isa, which will allow you to benefit from a 25% bonus from the government when you buy a home.

3. Get your finances in order

This is especially important if you're self-employed. When we spoke to brokers about getting a mortgage as a self-employed worker or contractor back in July, we were told that 'there are more hoops to jump through than ever before'.

Lenders will want to see at least two years of audited accounts to verify your income before considering an application, and you might need a bigger deposit than previously.

The most important thing is to get your paperwork in order in advance, so you can clearly evidence your income and ability to make repayments to your broker and lender.

mortgage application form

4. Choose the right time

With so many prospective buyers having been rejected by lenders, it's important to ensure you're applying for a mortgage at the right time.

Rejections can affect your credit rating and your morale, so don't rush into applying.

Make sure you've got a big enough deposit saved and do your research on the types of deal you might be eligible for.

Lenders will want to see you're a safe option, so get your credit file in order and choose a time when you're in a settled job. If you've recently started a new role, wait until after you've passed your probation period before applying.

5. Take advice from a mortgage broker

Buying a home will be your biggest investment, so it makes sense to get the best possible advice to help you get the right mortgage.

It's worth speaking to a whole-of-market mortgage broker, who will be able to look at all the available deals and find a mortgage that suits your circumstances.

A broker can be especially useful if you have specific circumstances that could affect your mortgage chances, for example, if you're self-employed, have a small deposit, or have a history of credit issues.