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One in three wannabe homebuyers could face mortgage rejection

Christina Hoghton
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Christina Hoghton

If you have a history of credit problems you could struggle to get a mainstream mortgage

A third (34%) of people planning to buy this year could see their mortgage application rejected by mainstream banks and building societies, according to The Mortgage Lender.

The lender found that 14% of UK adults are planning to buy a home in the next 12 months, but ‘adverse credit hsitories’ could see over a third have their application declined.

It added that financial stresses from the pandemic have driven more to build up unsecured debt, with concerns that the rising cost of living could exacerbate this trend in 2022.

Financial problems

The past two years have placed significant financial stress on individuals, said The Mortgage Lender, particularly those with complex incomes, such as the self-employed.

The lender’s study revealed that those hoping to buy a home this year have unsecured debts worth an average of £2,732, 34% higher than the UK average of £2,035.

The Mortgage Lender also found a number of people were involved in serious ‘adverse credit’ events, which would cause the majority, if not all, lenders to reject a mortgage application. It said that 15% of those planning to buy this year had previously received a default notice, 8% have previously applied for a Debt Relief Order (DRO) or Individual Voluntary Agreement (IVA), 6% have previously applied for a Debt Management Plan (DMP) and 8% have been issued with a County Court Judgement (CCJ) over a credit related matter.

Peter Beaumont, CEO of The Mortgage Lender, said: “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.

“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.”