More than a third (34%) of potential home buyers could see their mortgage application rejected this year due to “adverse credit histories”, new research by The Mortgage Lender (TML) has indicated.

The finding comes as 14% of UK adults are planning to buy a home in the next 12 months.

According to the study, those hoping to buy a home this year have unsecured debts worth an average £2,732, a figure 34% higher than the UK average of £2,035.
 
With the cost of living rising in the UK, and people facing significant cost increases from their utilities, groceries, and mortgages, TML warned that more individuals could be reliant on unsecured debt to get by month to month. This follows two years of “significant financial stress” on individuals, the lender said, particularly for those with complex incomes, such as the self-employed.
 
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 Bank of England (BoE) data.

TML CEO, Peter Beaumont, commented: “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.”

According to TML’s research, which was based on responses from 2,002 UK adults, several people had been involved in serious “adverse credit” events. These situations could cause the majority, if not all, lenders to reject a mortgage application.

TML revealed that 15% of those planning to buy this year had previously received a default notice, while 8% have previously applied for a debt relief order or individual voluntary agreement. A further 6% of those planning to buy a home this year have previously applied for a debt management plan and 8% have been issued with a county court Judgement over a credit related matter.

“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,” Beaumont added.

“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 SVR rate. With the BoE 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.”

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