Just under one in five first-time buyers got a mortgage on their first attempt last year – up from a rate where almost half of new homebuyers had their initial application accepted in the year preceding the pandemic, according to Aldermore.
Only 19% of FTBs were accepted for a mortgage on the first attempt in 2020, according to the challenger bank’s First Time Buyer Index.
This compares to 48% of newcomers who were able to access the property ladder on first application in the bank’s report the year before the health crisis.
The study attributes this “significant increase in mortgage rejection year-over-year” to several factors, many of which have been exacerbated by the pandemic.
He found that many FTBs are “struggling to get a mortgage as credit and deposit size challenges bite into the Covid-19 environment.”
He said the top reason for a rejected mortgage application is a bad credit history, which hit 41%, compared to 19% who cited this reason in the year before the pandemic.
The second most common reason for declining a mortgage is not being able to raise a large enough deposit, cited by 39%.
Lack of registration on the electoral lists, 39%, an administrative error, 35%, and being self-employed or contract worker, 33%, are the other main reasons why first-time buyers declare that their request mortgage loan was initially rejected.
The bank’s report states: “Research shows that many potential first-time home buyers are now more likely to be rejected for multiple reasons, rather than just one.”
The survey also found that 43% of applicants had been turned down for a mortgage more than once, up from just 17% in the 12 months before the health crisis.
He adds that 28% of future FTBs are worried about their credit history and 39% are currently actively looking to improve their score.
Head of Mortgage Distribution at Aldermore, Jon Cooper, said: “The data shows the pandemic has added to already difficult conditions for those trying to move up the housing ladder, but FTBs will not must not despair. Being denied a mortgage, while it can be a deflating experience, is not over as the options have expanded over the past decade.
He added that the ‘growth of specialist lenders’ during this period has ‘opened the door for those who had complicated income streams or credit issues in their past to find a path to home ownership’. .
Researchers on behalf of Aldermore interviewed a nationally representative sample of 1,008 potential FTBs in March.