Many first-time buyers are struggling to secure a mortgage and feel the prospect of owning their own home is unachievable, according to research from Aldermore.

More than one third (35 per cent) of people looking to buy their first home say they have been rejected once for a mortgage. A further 10 per cent have had more than one rejection.

Aldermore bank’s First Time Buyer Index, which surveyed 1,000 prospective first-time buyers in August 2020, shows that being self-employed or having credit problems is hindering their chances.

The most common reason for mortgage rejection, cited by 20 per cent of respondents, is being self-employed or a contract worker. This has increased from 12 per cent pre-Covid lockdown in March 2020 when it was the ninth most common reason for an application being declined.

As a result, nearly a quarter (23 per cent) say they have given up being self-employed to secure a mortgage.

In March, the top reason for a first-time buyer mortgage being declined was having a large amount of debt (20 per cent), which went down to 13 per cent in August.

Other barriers

There were other reasons for prospective FTBs being turned down for a loan including deposit size (18 per cent), salary intake (16 per cent) and poor credit history (15 per cent).

The research also found that 23 per cent of first-time buyers are worried about their credit history and 34 per cent are actively trying to improve their credit score.

Barriers affecting FTBs applying for a mortgage are having an overdraft (28 per cent), a gap in employment (25 per cent), student loans (25 per cent) and credit card debt (21 per cent).

Other more significant credit issues include 8 per cent of first-time buyers who have taken a payday loan, and 7 per cent have an account handled by collection agencies. In addition, 4 per cent have had a County Court Judgement in their past.

Improving credit profiles

Prospective FTBs are making efforts to improve their chances of getting a mortgage. The research found that half of respondents (51 per cent) are trying to improve their credit by paying their bills on time, while a third (34 per cent) are actively paying off debt.

Almost one in three (29 per cent) have recently registering onto the electoral roll – 9 per cent of respondents said their application was rejected due to not being registered to vote.

Other credit rating improvement initiatives include closing unused credit cards (19 per cent), reducing an overdraft (18 per cent) and seeking debt advice (7 per cent).

First-time buyers looking for support

More than six in 10 (62 per cent) said buying their first home feels unachievable at the moment and feel disheartened, especially during these uncertain times. Three quarters (74 per cent) of first-time buyers find the mortgage process stressful while two thirds (64 per cent) said it is confusing.

Aldermore head of mortgage distribution Jon Cooper says options for FTBs and the self-employed have broadened over the past decade.

He comments: “The growth of specialist lenders, who can handle more complicated applications, have allowed for credit issues to not be as much of a significant barrier to buying a home as it was before.

“The current generation of first-time buyers are now far more diverse, coming to the market with a wide range of financial backgrounds. But one constant is they all appear to find the process confusing and complicated, and the pandemic has only heightened this.

“It may feel daunting at times so we would recommend seeking advice from a mortgage broker that can give a whole of market view and provide options specific to a new buyers’ individual circumstances.”