First time buyers are more likely to be rejected for a mortgage than they were a year ago!

 A recent study by Aldermore Bank showed that first time buyers are more likely to be rejected for a mortgage than they were a year ago. Unfortunately, more than two in five said that they had been rejected more than once. This compares with fewer than one in five before the pandemic.

In the survey, the top reason for mortgage applications being rejected was due to having a poor credit history (41%) and over a quarter of prospective first-time buyers said that they were worried about their credit history with over a third currently seeking to improve their credit score. 

In our experience, an often-repeated mistake is for first time buyers with any kind of complexity and/or poor credit to seek to obtain a mortgage via their bank first and this will more often than not result in a rejected application. This can lead to despair, desperation and sometimes shame and embarrassment, but brokers like ourselves are experienced in helping such customers.

Regrettably, the survey also highlighted that more significant credit issues are becoming more prevalent too 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 County Court Judgement (CCJs) and 9% having a bankruptcy in their past.  These findings are being echoed in our day-to-day dealings with customers and it’s clear that the pandemic has impacted the finances of many, but that need not mean that they cannot obtain a mortgage.

By enlightening customers to the many options available, no matter what your circumstances, mortgage brokers can remove the supposed stigma and shame of having poor credit and help make your home ownership dreams a reality.

Be prepared at the start of the mortgage process, to save issues later on.

It will not have escaped your attention that lower deposit mortgages are back which is great news, although due to their higher rates and more stringent criteria only a lucky few may be able to successfully apply, at least for now.

For many potential borrowers, especially first-time buyers, these mortgages are out of reach for another reason and that is either because of outstanding credit commitments or minor adverse credit. 

Income and credit-related scrutiny has, quite rightly, been ramped up from a lending perspective in recent times and clients must share all relevant financial commitments.

This sounds obvious but we have experienced instances where missed information has caused major delays further down the line and the need for full transparency upfront is greater than ever.

An area highlighted by one of our top advisers is that clients often overlook student loans as being a credit commitment, as these are automatically deducted from salaries.

However, lenders may include these in their affordability calculations.

As a specialist mortgage broker, we’re also seeing a greater proportion of clients who are not only self-employed but who have a non-traditional income history and a variety of income streams. Lenders may consider such scenarios, and each has different policies in dealing with such cases.

With regards to adverse credit, we’re seeing the next generation of adverse credit coming through and if you delay/miss a payment to a utility or communications company, you could be awarded a default almost immediately. The biggest increase at the moment we’re seeing is car parking fines. People do not want to pay a silly little charge because they went over their time allowance at a superstore, but then they also ignore the private parking charge firms chasing them down.  However, these can escalate into a registered adverse item and ultimately affect their ability to achieve finance.

The more thorough and better prepared we are from the onset with all relevant and transparent details, the less time we will spend firefighting issues further down the line, and less stress will be placed on you, the client, throughout the mortgage process.

New Help to Buy and Shared Ownership schemes for First Time Buyers due in April

 

With changes to both the Help to Buy and Shared Ownership schemes due to come into force at the beginning of April 2021, it’s vital that you remain fully up to speed on how you may be affected by these impending changes.

The latest figures from the Ministry of Housing, Communities & Local Government outlined that a total of 291,903 properties were bought between 1 April 2013 and 30 September 2020 using the Help to Buy equity scheme. The data also showed that 82% of all completions were by first-time buyers. The total value of the equity loans was £17.4bn and the value of the properties sold under the scheme equated to £79.2bn. In addition, between 1 July and 30 September 2020, 13,211 properties were bought with an equity loan.

So, how does the new scheme differ from the old one?

The new Help to Buy scheme, running until 2023, will be restricted to first-time buyers and will operate with regional price caps in place (maximum property price in London £600k and South East £437,600 for example).

You can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home.  You do not pay interest on the equity loan for the first 5 years (interest starts in year 6 on the equity loan amount you borrowed). The equity loan, the deposit you have saved, and your repayment mortgage cover the total cost of buying your newly built home.

Help to Buy is not an all in-compassing solution but it can prove to be a viable option for a variety of first-time buyers, even for those who may have had a credit blip in the past.

Meanwhile, the new Shared Ownership scheme will allow buyers to purchase a minimum share of 10% compared to 25% previously, and will permit staircasing in instalments of 1%, rather than 5% or 10% currently.

In addition, a new 10-year period will be introduced for maintenance and repairs, whereby the landlord or housing association will be required to cover costs rather than homeowners.

Due to the complexity of both schemes, it is vital to seek good, impartial, independent, and professional advice before entering into any agreements.