High cost-of-living and inflationary pressures are taking its toll on households, making it far harder to get on the housing ladder due to more people having a less than perfect credit score.
With the FCA reporting the number of adults who missed bills or loan payments in at least three of the last six months has risen by 1.4mn to 5.6mn, the proportion of those with blips on their record is already rising dramatically and impacting more income brackets. And supporting research from Together’s recent market wide study reveals this has been a growing issue for upper and middle-class borrowers, with 26% rejected in the last five years due to having thin or impaired credit.
Among those who’ve had a mortgage application rejected, a fifth (20%) couldn’t secure the mortgage they needed in time so lost their dream home and 16% gave up on purchasing altogether. Others had to go back to the drawing board and resort to more drastic measures, with a quarter (23%) relying heavily on family and friends to act as a guarantor – opening themselves up to possible repayment anxiety in the future - and 17% draining all their savings just to be able to buy with a cash deposit.
For those outright rejected, there is also a significant emotional penalty. Among those who had been turned down, 32% say the result left them feeling worried for their future, 26% said it made them depressed and 23% said they felt like a failure.
Alan Davison, Personal Finance Distribution Director at Together, said: “With everyone’s finances under pressure and the threat of recession, our research makes clear the impact on potential mortgage borrowers of having a blip on their credit record – and the emotional toll that can bring. And yet people who may have missed paying a single bill, for example, could be locked out by mainstream lenders’ strict criteria, potentially deterring them from pursuing homeownership altogether.
“We found a fifth of applicants were rejected by the high street, so opted for a specialist lender instead. While this might not be the option for all, it does offer a route onto the property ladder as people’s missed payments are instead assessed on a case-by-case basis. So long as there is a plausible explanation for past payment difficulties, most specialist lenders will be able to look to provide the secured finance needed to meet the applicant’s ambitions.”
He added: “There’s a longer-term case to make mortgages fairer to all and ensure the industry is adapting to people’s changing financial circumstances as this will prevent more people from being automatically rejected for historic payment issues.”
