TML’s survey revealed that 14% of UK adults intended to buy a home in the next 12 months, but that 34% of them could see their applications rejected by mainstream banks and building societies.
This is due to them having unsecured debts worth an average of £2,732 – 34% higher than the UK average of £2,035.
To obtain the data, last November TML polled just over 2,000 individuals, of which 277 said they planned to buy a property in the next year.
The research found that self-employed people were particularly vulnerable, due to their complex incomes.
It said financial stresses from the pandemic had driven more individuals to build up unsecured debt, adding concerns that the rising cost of living “could exacerbate this trend in 2022”.
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The report added: “With the cost of living rising in the UK, and people facing significant cost increases from their utilities, groceries, and mortgages, there is a real concern that more individuals could be reliant on unsecured debt to get by month to month.”
It also warned that a reduction in the government’s pandemic support measures “has already prompted consumer borrowing on credit cards to jump to its highest level in more than a year”, citing data from the Bank of England which showed that this had pushed all forms of household unsecured credit to £1.2bn.
TML’s research also found that 15% of those planning to buy this year had previously received a default notice, while 8% had previously applied for a Debt Relief Order (DRO) or Individual Voluntary Agreement (IVA).
TML warned that while those with small amounts of unsecured debt “were likely to still be able to access a mortgage” there was still a risk that increasing financial pressures during the coming year could result in a rise in the number of people with “serious marks on their credit scores”, which could “not only shut them out of the mortgage market now, but for many years into the future”.
Peter Beaumont, chief executive of TML, said: “The reality is a number of those who are expecting to buy a home this year are likely to see their mortgage rejected out of hand. With more ‘buy now pay later’ products on the market and the rising costs of everyday items, there is a real risk that people will unknowingly walk into a bad credit score.
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“It’s vital that people understand the impact that even a small amount of debt could have on a lending decision in order to make an informed choice before taking on any additional debt. This is not only a concern for those first-time buyers trying to get on to the property ladder, but also for homeowners looking to remortgage in the next few years.
“The risk for this group is that lenders no longer deem them a viable option, and they tick up on to the SVR rate. With the Bank of England expected to continue to raise the base rate over the next year, this could mean they end up paying substantially more in their repayments than expected.
“In real life, things go wrong – and it seems unfair to punish someone for a short-term credit blip here or there. Luckily, for those people who would otherwise be left with no option, there are specialist lenders out there who have more flexible criteria and believe in real-life lending.”
Kevin Roberts, the director at Legal & General Mortgage Club, stressed that he had not seen TML’s research but on hearing the main points he said he was not surprised by the data.
“People in paid PAYE roles are probably sitting pretty, but many people that are not self-employed at an hourly rate may see their financial circumstances a little bit more complicated,” he told Mortgage Introducer.
However, he pointed out that it was also “a massive opportunity” for mortgage advisers who were more used to dealing with complex financial records, adding that there were scores of specialist lenders available to cater for these types of borrowers.
