"The pandemic has added to already challenging conditions for those trying to get on the housing ladder but first-time buyers should not despair."
Only 19% of prospective first-time buyers were able to get a mortgage on the first attempt over the past 12 months, representing a huge change from the 48% that were able to pre-Covid-19, according to new data from Aldermore.
Two fifths (38%) were rejected for a mortgage once, whereas 43% say they were rejected for a mortgage more than once. This shows a significant shift from pre-Covid-19 when a third (36%) reported being rejected once and only 17% said they had been rejected more than once
The research shows that first-time buyers are now more likely to be rejected for multiple reasons, rather than just one. The main reason for a rejected mortgage application was that the prospective buyer has poor credit history (41%), up from 19% in March 2020.
Other top reasons included deposit size (39%), not being on the electoral roll (39%), administrative error (35%), and being self-employed or a contract worker (33%).
Over a quarter (28%) of first-time buyers say credit history is a big concern, with 39% looking to actively improve their credit score to increase their chances of securing a mortgage. One in five (19%) now worry that their credit rating has gotten worse since the Covid-19 outbreak.
The main credit-related barriers affecting first time buyers applying for a mortgage are having an overdraft (34%), a gap in employment (31%), student loans (26%) and credit card debt (23%). There is also a noteworthy proportion that have more significant credit issues with nearly a quarter (23%) having an account handled by collection agencies, one in nine (14%) having taken out a payday loan, 12% having a CCJ and 9% having a bankruptcy in their past.
Prospective first-time buyers are now actively improving their credit with half (51%) ensuring they pay bills on time, 37% recently registering to be on the electoral roll, 28% actively paying off debt, and 24% paying down their overdrafts. Other credit rating improvement initiatives include closing unused credit cards (21%), seeking debt advice (15%) and paying off a student loan (15%).
Jon Cooper, head of mortgage distribution at Aldermore, said: “The data shows that the pandemic has added to already challenging conditions for those trying to get on the housing ladder but first-time buyers 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. The growth of specialist lenders, that through human underwriting can dig into the detail of more complicated applications, have opened the door for those with complicated income streams or credit issues in their past to find a pathway to home ownership."