Around 14% of UK adults plan to buy a home over the next 12 months, but 34% of them could see their mortgage application rejected due to poor credit histories, according to The Mortgage Lender.

The report from TML says: “The past two years have placed significant financial stress on individuals, particularly those with complex incomes, such as the self-employed.”

It says that on average potential homebuyers hoping to buy a property this year have unsecured debts of £2,732, 34% higher than the UK average of £2,035.

It adds: “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 points out that a reduction in government pandemic support measures has already prompted consumer borrowing on credit cards to jump to its highest level in more than a year, pushing all forms of household unsecured credit to £1.2bn, according to the Bank of England Money and Credit survey in January.

TML’s research found that 15% of those planning to buy a home this year had previously received a default notice.

Another 8% have previously applied for a debt relief order or individual voluntary agreement.

A further 6% have previously applied for a debt management plan, and 8% have been issued with a county court judgement over a credit related matter. 

It says: “These situations could cause the majority, if not all, lenders to reject a mortgage application.”

The report says that while those with small amounts of unsecured debt are likely to still be able to access a mortgage, particularly from specialist lenders, but adds, “there is a risk that as financial pressures build over the next year, we could see a rise in the number of people with serious marks on their credit score.

“This could not only shut them out of the mortgage market now, but for many years into the future too.”

The Mortgage Lender chief executive Peter Beaumont says: “The past few years have been challenging for everyone and these findings illustrate just how many people planning to buy a home this year have also had to contend with credit issues.

“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.

“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 onto 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 onto the standard variable 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.”